Insurance Flashcards
Best life insurance option for couple to pay for estate taxes?
Survivorship Life (2nd to die)
What must be shown to exercise a guaranteed insurability option on disability insurance?
Proof of higher earnings
Can group coverage be converted to individual health policy
Yes
Business Overhead Expense policy: a company deduct premium and are benefits taxable?
Premium not deductible, benefits not taxable.
Risk
Possibility of a loss
Peril
Cause of a loss (windstorm, fire, theft)
Hazard
Increases the chance of loss (home on earthquake line or river)
Requirements/ Elements of Insurance (4)
Large number of homogeneous exposure units
Loss must be definite and measurable
Must be fortuitous or accidental
Must not be catastrophic (for insurance company)
Methods to Avoid/ Reduce loss (5)
Avoidance
Diversification
Transference (Insurance)
Retention
Risk Reduction
When is Insurance Interest required (Property/Casualty)
At inception and at time of claim
When is Insurance Interest required (Life)
At inception but need not be at time of claim
Parts of Insurance Contract (DDICE) with explanation
Declarations Page- identifies what is insurance
Definitions- key policy terms
Insurance Agreements- basic promise of insurance company
Conditions- duties and rights of both parties
Exclusions- circumstances when Insurer will not pay
Negligence/Liabilities (5)
Attractive Nuisances
Negligence per se (violates statue)
Strict Liabilities (product)
Absolute Liability (workers comp)
Vicarious Liability (principal for agent)
Defenses of Insurer (4)
Assumption of Risk
Contributory
Comparative
Last Clear Chance
Calculating Life Insurance Needs (2 methods)
Capital Utilization- uses annuitization/ leaves no money
Capital Needs- interest only
Insurance Rating Service (2 best) with rating range
A.M Best (A++ to F)
Standard & Poor (AAA to CCC)
Sections of Homeowners’ Policy (I & II ABCDEF)
Section I
A- dwelling and attached structures
B-separate structures
C-contents and personal property
D- loss of use
Section II
E- liability
F- medical payments
Personal Property Exclusion (4 groups)
Animals
Motorized land vehicles or aircraft
Property of roomers, boards, or other tenants
Property in rental apartment/house
Basic Form Perils (WHARVVES FLT)
Windstorm
Hail
Aircraft
Riot
Vandalism
Vehicles
Explosion
Smoke
Fire, Lightning, Theft
Broad Form Perils (RAFF)
Rupture of a system
Artificially generated electricity
Falling objects
Freezing of Plumbing
Homeowner’s policies (1-8)
HO-1 Basic
HO-2 Home Basic
HO-3 Home Open
HO-4 Renters
HO-5 Home Open
HO-6 Condo
HO-7 mobile home
HO-8 older home
Homeowner Exclusions (OPENN WIF)
Ordinance/Law
Power Failure
Earthquake
Neglect
Nuclear
War
Intentional
Flood
Sink Hole is covered peril
Replacement Cost Coverage formula
Replacement cost X Coinsurance %= Insurance Required
Insurance carried/required X loss - deductible= amount paid by Ins
Requirements for Auto to be insured with PAP (4)
Owned by individual, spouses in same household, or kid in college
Private passenger automobile
Not to be used as public livery conveyance (for hire)
Not to be rented to others
Auto Insurance Policy Parts (A-D)
A- limited to third parties (liability)
B-medical payments
C- uninsured/underinsured motorists
D-damage to covered auto
Persons insured under medical payments coverage of PAP (3)
Name insured and family member occupying the covered auto
Name insured and family member stuck as pedestrian
Other passengers in insured auto
Uninsured Motorist Coverage
Liability coverage that could have been collected if other driver had adequate insurance
Perils Covered under “Other than Collision” (12)
Breakage of Glass
Falling Objects
Fire
Theft
Explosion
Earthquake
Windstorm
Hail
Water
Flood
Riot or civil commotion
Contact with birds or animals
Professional Liability (two types of coverage)
Malpractice
Errors and Omissions
Workers Compensation coverages (5)
Unlimited Medical Expenses
Disability Income (Tax Free)
Death Benefits
Rehabilitation (medical and vocational)
Absolute Liability
Medicare does not cover (5)
Foot Care
Glasses
Hearing Aids
Dental Work
Emergency care outside US
Medicare Long Term Care (how long)
Pays all of first 20 days for skilled care
Everything over a specified amount for next 80 days for skilled care
HMO VS PPO
HMO- Provider paid monthly fee regardless of services rendered
No out of network
PPO- Provider paid for actual services
out of network partially covered (usually 70%)
Cobra Coverage Length (3)
18 month coverage for employees/ dependents -termination
29 moth coverage for employees/ dependents- disability
36 month coverage for dependents- employee’s death, divorce, Medicare eligibility, child reaching age limit
Disability Income policy continuation provisions (2)
Noncancelable- continuous term policy- guaranteed right to maintain policy at stated premium
Guaranteed renewable- right to maintain policy, but insurer may increase premium by class of insured
Taxation of Disability Insurance- Employee pays premium
Premium not deductible for employer
Benefits tax free to employee
Taxation of Disability Insurance- Employer pays premium (162 bonus)
Premium tax deductible for employer as bonus
Benefits tax free to employee
Taxation of Disability Insurance- Employer pays premium (group plan)
Premium deductible by employer
Benefits taxable to employee
Permanent Life Insurance- low risk tolerance (2 types)
Whole Life
Universal Life
Insurance company controls investment return, assets part of general account
Permanent Life Insurance- high risk tolerance (2 types)
Variable Life
Variable Universal Life
Client controls investment return, assets part of separate account
Life Insurance Dividend Options (CRAPO)
Cash
Reduce Premium
Accumulate with interest
Paid -up additions
One-year term/ 5th dividend
Life Insurance Nonforfeiture Options (3)
Cash
Extended Term
Paid Up Reduced Amount
Life Insurance Settlement Options (6)
Cash
Pure Life/Single life
Refund
Period Certain
Specified Income Period
Interest Only
Requirements to be MEC (2)
Entered into after June 21, 1988
Fails to meet seven pay test
Taxation of MEC (3)
Distributions/ Withdrawals LIFO (interest first)
Distributions before 59 1/2 10% penalty
Death Benefit tax free
MEC grandfather rules (2)
If death benefit increases by $150k or less with no proof of insurability required
If policy increases by any amount and insured is required to prove insurability the policy MAY lose grandfather status
Life Insurance Proceeds taxable for Transfer of Value exceptions (4)
to the insured
to a partner or partnership in which insured is partner
to a corporation in which the insured is a shareholder or officer
Divorce
When is 1035 exchange not allowed?
Annuity to Life
Buy-Sell Stock Redemption vs. Cross Purchase
Stock Redemption- no step up in basis, entity is owner and beneficiary
Cross Purchase- Step up in basis, individual is owner and beneficiary
Split Dollar Insurance Endorsement VS Collateral Assignment
Endorsement - Employer is Owner, Employee not shareholder
Collateral Assignment- Employee is owner, is shareholder, assigns policy
Annuity taxation
Basis/payout= tax free
Lump Sum- LIFO, 10% penalty under 59.5
FSA facts (4)
Must be used by March 15, Dependent care by 12/31
Not subject to income tax
Not for insurance premiums paid
No long term care expenses
Tax Free Fringe Benefits (6)
Health care premiums
Group Life up to $50k
Company car
Transit passes or parking ($300 monthly)
Occasional meal money, cab fare, theater or sports
Discounts up to 20% of sales price
Taxable Fringe Benefit for S Corp, Partnership, Self Employed
Health Insurance premiums, but deductible on front of 1040
