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CFP > Insurance > Flashcards

Insurance Flashcards

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1
Q

Risk: high severity, high frequency

A

avoidance
- most serious type of risk

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2
Q

Risk: low severity, high frequency

A

retention/reduction
- minimal financial loss, too expensive to insure

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3
Q

Risk: high severity, low frequency

A

insurance
- ‘tree falls on house’
- financial loss could be severe, but doesn’t happen often

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4
Q

Risk: low severity, low frequency

A

retention/reduction
- minor injuries, illnesses, car door dings

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5
Q

Emergency Fund (>, =, <) Deductible

A

> , =

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6
Q

Peril definition

A

actual cause of loss

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7
Q

Hazard definition

A

increase types of perils happening
- physical
- moral
- morale

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8
Q

Adverse Selection definition

A

unhealthy
- more likely to claim

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9
Q

Principle of Indemnity

A

cannot profit from insurance

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10
Q

Subrogation Clause

A

cannot gain money from both insurance and 3rd party

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11
Q

Replacement cost

A

good
- FMV of replacement property with new materials of like kind

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12
Q

Actual Cash Value

A

depreciated (not good)
- essentially replacement cost - depreciation

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13
Q

Agreed Upon Value

A

typically used for art, antiques
- appraisal

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14
Q

Coinsurance formula

A

[amount coverage purchased / (replacement cost * .8)] x (loss - deductible)

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15
Q

Rating Agencies list

A

AM Best’s
Moody’s

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16
Q

AM Best’s high/low

A
  • high (A++, A/A-)
  • low (C/C, D)
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17
Q

Moody’s high/low

A
  • high (Aaa, Aa1/Aa2)
  • low (B1/B2/B3 to Caa)
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18
Q

Insurance Regulation definition

A
  • regulation at state level
  • legislative branch
  • judicial branch
  • Executive/State Insurance Commissioner
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19
Q

Legislative Branch definition

A
  • provides for licensing of agents
  • enacts laws & requirements for doing business in particular state
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20
Q

Judicial Branch definition

A
  • rules on constitutionality of laws passed by legislative branch
  • renders decisions & interpretations regarding policy terms
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21
Q

Executive/State Insurance Commissioner

A
  • administers, interprets and enforces insurance laws
  • member of NAIC
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22
Q

Capital Needs Approach definition

A
  • income needs, educations & retirement funding
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23
Q

Human Life Value Approach definition

A
  • amount of income earned - amount consumed by insured
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24
Q

Capital Retention

A
  • TVM
  • not invade capital
  • use as income generator
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25
Q

Income retention

A
  • TVM
  • use up all account
  • maintain income level
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26
Q

Income multiplier

A
  • multiple of income
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27
Q

Dividend Options (CRAPO)

A
  • Cash
  • Reduce future premiums
  • Accumulate at interest
  • Paid-up permanent additions (purchase of)
  • One-year term insurance aditions (purchase of)
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28
Q

Taxation: life insurance for life insurance

A

tax free

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29
Q

Taxation: life insurance for annuity

A

tax free

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30
Q

Taxation: annuity for life insurance

A

taxable

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31
Q

Taxation: annuity for annuity

A

tax free

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32
Q

Taxation on withdrawal from annuity: pre-1982

A

FIFO

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33
Q

Taxation on withdrawal from annuity: after-1982

A

LIFO

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34
Q

Patient Protection & Affordable Care Act (PPACA)

A
  • requires most US citizens/legal residents to have health insurance
  • guarantee issue & renewability
  • covers dependents up to 26 yrs old
  • prohibit lifetime limits & annual limits on coverage
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35
Q

PPACA employer requirements

A
  • 50+ full time EE
  • must offer affordable coverage
  • penalty fee of $4,320 per EE excluding first 30 EE from assessment
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36
Q

PPACA Plan categories for coinsurance

A
  • Bronze 60% costs
  • Silver 70% costs
  • Gold 80% costs
  • Platinum 90% costs
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37
Q

Preferred Provider Organizations (PPOs)

A
  • flexible to see doctors outside of network
  • more expensive
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38
Q

Health Maintenance Organization (HMOs)

A
  • cheaper
  • only coverage IN network
  • primary care physician
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39
Q

Health insurance provisions

A
  • non-cancelable policies
  • guaranteed renewable policy
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40
Q

Non-cancelable policy

A
  • health insurance provision
  • more expensive
  • continuous
  • premium fixed
  • right to renew until specific age/number of years
41
Q

Guaranteed renewable policy

A
  • health insurance provision
  • typical through ER
  • insurance company allowed to adjust premiums
42
Q

COBRA requirements

A
  • ER who offers group health plan
  • has at least 20 full time EE
43
Q

Long term care coverage options (7)

A
  • skilled nursing (nursing home/phsycian ordered)
  • intermediate nursing (occasional nursing care/physician ordered)
  • custodial care (assistance with eating, dressing, bathing, etc)
  • home health care (in-home nursing/necessary assistance)
  • assisted living (apartment style living with healthcare services)
  • adult day care (daily assistance while spouse/family works)
  • hospice care (terminally ill, at home, hospital or nursing facility)
44
Q

LTC variables: Elimination period

A

deductible (shorter time = more expensive)

45
Q

LTC variables: Daily benefit

A

$100-$200

46
Q

LTC variables: Benefit period

A

how long (3-5yrs)

47
Q

LTC Qualified requirements

A
  • no surrender value
  • limited to qualified LTC services
  • use dividends to reduce future premiums/increase benefits
  • meet customer protection laws
  • doesn’t pay for expenses covered under Medicare
48
Q

LTC: > 70yrs old maximum deduction amount

A

$5,960
- portion of LTC premiums are tax deductible subject to medical deduction of 7.5% AGI

49
Q

DI: Any Occupation

A
  • cheapest
  • hardest to qualify
  • considered disabled if insured cannot perform duties of ‘Any Occupation’
50
Q

DI: Own Occupation

A
  • most expensive
  • highly specialized field
  • considered disabled if insured cannot perform duties of his ‘Own Occupation’
51
Q

DI: Modified Any Occupation

A
  • considered disabled if unable to perform duties of gainful occupation they’re reasonably fitted by education, experience, training, and prior economic status
52
Q

DI: Split Definition

A
  • begins with own occupation, and moves into modified any occupation
  • ‘pay 5 yrs, then switch’
53
Q

HO Insurance: Section 1 Coverages

A
  • A: Dwelling
  • B: Other Structures
  • C: Personal Property
  • D: Loss of Use
54
Q

HO Insurance: Section 2 Coverages

A
  • E: Personal Liability
  • F: Medical Payments to Others
55
Q

HO Insurance: Basic Named Perils (SLW FVVVHEART)
*one word descriptions

A
  • smoke
  • lightning
  • windstorm
  • fire
  • vehicles
  • vandalism
  • volcano
  • hail
  • explosion
  • aircraft
  • riot
  • theft
56
Q

HO Insurance: Broad Named Perils (FAS-FWD)
*multi-word descriptions

A
  • falling objects
  • accidental overflow of water (not flood)
  • sudden bursting of appliances
  • freezing of system/appliance
  • weight of snow/ice/sleet
  • damage from electrical current
57
Q

HO Policies General Exclusions

A
  • movement of ground
  • ordinance of law
  • damage from water (flood/water from underground and sewer backup)
  • war/nuclear hazard
  • power failure
  • intentional act
  • neglect
58
Q

HO-1 Basic Form

A

only covers basic named perils

59
Q

HO-2 Broad Form

A

basic and broad named perils

60
Q

HO-3 Special Form

A
  • coverage on dwelling and other structures on open perils basis (coverage against all physical loss other than those specifically excluded)
  • personal property covered on named-peril basis (can endorse for open perils and recommended)
61
Q

HO-4 Contents Broad Form

A
  • 4 RENT
  • protection for furniture, clothes, and other personal property against same perils as HO-2
62
Q

HO-5 Comprehensive Form

A
  • always recommended
  • dwelling & personal property covered on open peril basis
63
Q

HO-6 Unit Owners Form

A
  • condos
  • basic & broad named perils
  • no building coverage
  • personal property coverage same named perils as HO-2
  • endorsements can be added (provide open peril on items/personal property/loss of unit rental/assessment coverage)
64
Q

HO-8 Modified Form

A
  • historic
  • covers repair rather than replacement cost
  • basic perils covered
  • cover losses to structures where jreplacement cost for home exceeds market price for home
65
Q

HO-1 Coverage Summary

A
  • coverage A-D = basic
66
Q

HO-2 Coverage Summary

A
  • coverage A-D = broad
67
Q

HO-3 Coverage Summary

A
  • coverage A & B = Open
  • coverage C = Broad
  • coverage D = Open/Broad
68
Q

HO-4 Coverage Summary

A
  • coverage A&B = N/A
  • coverage C&D = Broad
69
Q

HO-6 Coverage Summary

A
  • coverage A = Broad
  • coverage B = N/A
  • coverage C&D = Broad
70
Q

HO-8 Coverage Summary

A
  • coverage A-D = Basic
71
Q

Inland Marine definition

A
  • specialty items
  • coverage usually included in HO as scheduled endorsement (scheduled floater)
  • personal furs/jewelry/silverware/camera/fine art/antiques, etc
72
Q

PAP Part A: Liability Coverage

A
  • for being sued
  • covers you, any family member, any person using car with your permission
  • coverage: bodily damage per person/per occurrence/property damage per occurance (50/100/50)
73
Q

PAP Part B: Medical Payments

A
  • covers you, any family member, or other person occupying vehicle
  • you or family as a pedestrian struck by an auto
  • coverage: per person/per occurrence basis ($5,000 limit per person, four persons in car = $20,000 limit)
74
Q

Collision

A
  • protects against accident involving another car
  • running off road
  • into creek/lake/tree/wall
75
Q

Comprehensive or Other Than Collision

A
  • falling objects
  • fire
  • theft
  • windstorm
76
Q

Negligence on part of the injured party: Contributory

A

persons negligent actions contributed to loss
- CANNOT recover

77
Q

Negligence on part of the injured party: Comparative

A

persons negligent actions contributed to loss
- CAN recover portion of loss from other negligent party

78
Q

OASDI is ___% (both ER & EE) up to wage base $_____

A
  • 6.2% each (12.4% total)
  • $160,200 (2023)
79
Q

Medicare is ___% (both ER & EE) on unlimited amount of wages

A
  • 1.45% each (2.9% total)
80
Q

Additional Medicare Tax of __% (EE) on income in excess of $_____ single or $_____ MFJ

A
  • 0.9%
  • single $200,000
  • MFJ $250,000
81
Q

Social Security: PIA Reduction of benefits

A
  • reduced 5/9 for each month for first 3 yrs that worker retires early
  • reduced 5/12 for each month > 3 yrs
    *** used jointly (if retired 5 yrs early, then 5/9 for first 3 yrs, then 5/12 for other 2 yrs)
82
Q

Social Security: PIA Increase in benefits annually

A
  • born 1943 or later has yearly increase of 8% (simple interest i.e. 8% first yr delay, 16% second yr delay)
83
Q

Social Security: PIA Increase in benefits monthly

A
  • born 1943 or later monthly rate increase of 2/3 of 1%
84
Q

Social Security Disability definition

A
  • disability expected to last 12 months OR
  • disability will result in death AND cannot perform duties of any occupation
  • severe physical/mental impairment expected to prevent worker from performing substantial work for at least 1 yr/result in death
  • depends on credits earned/when disabled
85
Q

SS: Fully Insured

A

must earn 40 quarters of coverage (10yrs)
- 1 quarter = $1,640 wages

86
Q

SS: Covered Disability if age 31+ requirements

A

fully insured (40 quarters)
- earned 20 quarters in last 10 yrs

87
Q

SS: Covered Disability if age 24-31 requirements

A

1/2 calendar quarters elapsed sincer worker reached age 21
- If at age 27 you become disabled, you would need 12 work credits in the past six years (between age 21 and age 27)

88
Q

SS: Covered Disability if age 21-24 requirements

A

6 quarters earned

89
Q

SS Benefits: 1st Hurdle

A

$25,000 (single)
- $32,000 (MFJ)

90
Q

SS Benefits: 2nd Hurdle

A

$34,000 (single)
- $44,000 (MFJ)

91
Q

Medicare Definition

A

federal health insurance for 65+
- auto enroll if receiving SS at 65
- not receiving SS at 65 - MUST enroll 3 months before/after

92
Q

Medicare Part A covers

A

Hospital Insurance (covers places)
- inpatient hospital care
- skilled nursing care following covered hospital stay
- home health care
- hospice

  • semi-private rooms
  • meals
  • operating & recovery room
  • lab tests
  • X-rays
93
Q

Medcare Part A doesn’t cover

A

custodial services

94
Q

Medicare Part A summary

A

free part
- no monthly pay while using
- deductible $1,600 per benefit period (1st 60 days)

  • coinsurance doubles
    – $400/day for 61-90 days, $800/day for 91-150 days
    – $200/day skilled nursing (21-100 days) - first 20 days covered 100%
95
Q

Medicare Part B summary

A
  • pays 80% approved charges (coinsurance)
  • no max out of pocket
  • monthly cost
  • auto enroll unless opt out
96
Q

Medcare Part B doesn’t cover

A

dental care, dentures
- cosmetic surgery
- hearing aids
- eye exams
- routine physical exams

97
Q

Medicare Part C summary

A

medicare advantage/medicare managed care plan
- must have part A & B
- monthly premium
- covered emergency & urgent care
- may provide extra benefits like dental care, eyeglasses, wellness programs

98
Q

Medicare Part D summary

A

drugs
- usually monthly premium
- deductible and coinsurance amount

CFP (9 decks)

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