Insurance

Question 1

Perils

Answer 1

Cause of loss

Question 2

Hazard

Answer 2

Condition that increases the likelihood of a loss occurring

Question 3

Types of hazards and definitions

Answer 3

1. Moral hazard- character flaw
2. Morale hazard- indifference crested because a person is insured
3. Physical hazard- tangible condition that increase the probability of a peril occurring

Question 4

Elements of a valid contract

Answer 4

1. Offer and acceptance
2. Legal competency
3. Legal consideration
4. Contract must pertain to a lawful purpose

Question 5

Subrogation clause

Answer 5

Insured cannot receive compensation from both the insurer and a third party for the Sam claim

Question 6

The principal of insurable Interest

Answer 6

An insured must have an emotional or financial hardship resulting from damage, loss, or destruction

Question 7

The principal of indemnity

Answer 7

An insured is only entitled to compensation to the extent of the insured’s financial loss

Question 8

Warranty

Answer 8

A promise made by the insured to the insured

Question 9

What are riders and endorsements

Answer 9

Written additions to an insurance contract

Question 10

Goals of state insurance regulation

Answer 10

Protect the insured, maintain and promote competition, maintain solvency of insurers

Question 11

Actual cash value

Answer 11

Replacement cost less depreciation,

Question 12

Coinsurance definition & Formula

Answer 12

when a homeowners policy requires you to cover at least a stated percentage of the property value.

(Face value/ coinsurance) x Loss- deductible
coinsurance= 80% x replacement cost

Question 13

what does NAIC stand for? and what do they do?

Answer 13

National Association of Insurance Commissioners- provides a watchlist of insurance companies based on financial ratio analysis. has no regulatory power as regulation occurs at state level

Question 14

Risk Management steps (DIE-DIE)

Answer 14

determine objectives of risk management program, Identify the risk where client is exposed, Evaluate risks a to probability of occurrence and potential loss, determine alternatives, Implement, Evaluate/ monitor/ review

Question 15

Term Life Policies- (ART) Annual Renewable Term

Answer 15

premiums increase annually. No cash value. Death benefit is fixed at face amount

Question 16

Term Life Policies- Level Term

Answer 16

Premiums are level for a period of time. no cash value. death benefit is fixed at the face amount of the policy

Question 17

Term Life Policies- Decreasing Term

Answer 17

premiums are level. no cash value. death benefit decreases over term policy

Question 18

Whole Life Insurance- Ordinary Life

Answer 18

Pay premiums until death or age 120, death benefit is level throughout policy term, cash value increases to face value

Question 19

Whole Life Insurance- Limited Pay Life

Answer 19

premiums are higher because insured pays premiums until a certain age.

Question 20

Whole Life Insurance- Variable Life

Answer 20

cash value is invested,death benefit and cash value fluctuates based on investment performance

Question 21

Whole Life insurance- (CAWL) Current Assumption Whole Life

Answer 21

Interest sensitive insurance. insurer uses new money rates and new mortality rates to establish premiums. insurer can adjust premium

Question 22

5 Dividend options

Answer 22

(CRAP-O) cash, Accumulate at interest, reduce premiums, paid up additions, one year term

Question 23

Life Insurance Nonforfeiture Options

Answer 23

cash surrender value, reduced paid up insurance, extended term insurance

Question 24

Universal Life insurance

Answer 24

insured can adjust premiums, face val, and cash val. insured does not direct investments. cash val can be used to pay premiums

Question 25

Modified Endowment contract (MEC)

Answer 25

life insurance policy that fails the 7 pay test. if cumulative premiums paid exceed the premiums due for the time period being considered.

Question 26

Withdrawal consequences for MEC

Answer 26

withdrawals or loans taxed on LIFO basis

Question 27

Tax consequences for surrendering life insurance policy prior to death

Answer 27

lump sum- amount above premiums is ordinary income, Interest only- interest taxed as ordinary income, Installment payments- interest portion taxed as ordinary income

Question 28

Transfer for value exceptions

Answer 28

if transferred to insured, business partner, or to a partnership, corporation where the share holder has ownership. also transfer where no payment was received

Question 29

Viatical settlement

Answer 29

when a life insurance company allows a terminally ill person to receive an accelerated death benefit under the contract

Question 30

Penalty for non- qualified medical expense distributions

Answer 30

subject to income tax and 20% penalty if taken before 65. after 65 it is subject to income tax only

Question 31

HIPPA

Answer 31

Health Insurance Portability and Accountability Act. ability to obtain health insurance when changing jobs without restrictions on preexisting conditions. (changing from group plan to group plan within 62 days)

Question 32

COBRA

Answer 32

an extension of group insurance with same coverage.

Question 33

COBRA eligibility

Answer 33

eligible if employee dies, terminated, reduced to part time, separates from spouse, becomes eligible for medicare, dependent child no longer eligible

Question 34

Res ispa loquitur

Answer 34

“the act speaks for itself” permits the use of reasonable evidence when a specific explanation of negligence is not available.

Question 35

negligence per se

Answer 35

the act itself constitutes negligence, thereby relieving the burden to prove negligence.

Question 36

burden proof

Answer 36

initially borne by the injured party

Question 37

Social Security tax rates

Answer 37

6.2% on wages up to the wage base 1.45% on all wages. 0.9% additional medicare surtax on wage and SE income over thresholds

Question 38

Retirement Eligibility- Social security

Answer 38

Must be fully insured, meaning worker must ear 40 quarters of coverage. 1 quarter= $1,640 in wages subject to social security

Question 39

Reduction of benefits (SS) for first 3 years of early retirement

Answer 39

reduced by 5/9 of 1% for each month

Question 40

Reduction of benefits (SS) for 3 years or more of early retirement

Answer 40

reduced by 5/12 of 1% for each month

Question 41

Medicare Part A, B