Insurance Flashcards
Life insurance is a gift when
The owner and insured are not the same person.
Ex. If I own a policy on Mark and name Alisha then it’s a gift from me to Alisha
VS
If Mark is the owner AND the insured then it’s not a gift to beneficiary
Life insurance is NOT taxed to beneficiary as income. Issue is whether the estate or policy owner is considered to have given a gift of FV of policy upon death. Issue for high net worth individuals (where estate is above the 13.610M)
Deferred vs Immediate annuity
How long after purchase date is “deferred”?
“Immediate” starts b/w 1 month and 1 year
Deferred starts OVER 1 year from purchase date
Exclusion ratio on Annuity payouts
Monthly pmt12exp years = total payout
Investment in contract / total payout = tax free portion
RTFQ - asking for taxable, tax free, monthly, for the year, how many months in year
AIME (SS). Basics
Adjusted index monthly earnings
Adjust best 35 years to today’s dollars
(If not 35 years the extra are at 0)
SS: PIA
primary insurance amount @FRA
5 years 62-67. Max reduction 30%
First 36 months 5/9 of a percent
Next 24 months 5/12 of a percent
67 to 70 increases 2/3 of a percent per month (8%/year)
Max 24%
Taxability of social security benefits
Provisional income
Mfj 32/44
Sing 25/34
0/50/85
MFJ 0 32k, 50% to 44k then 85%
Sing 0 25k, 50% to 34k then 85%
Top $ both end in 4
SS provisional income
Provisional income
50% of social security
+ Tax exempt
+ AGI before social security
Life insurance non forfeiture options
Cash surrender value
Extended term option
Reduced paid up
Automatic premium loan
Life insurance dividend options
CRAPO
Cash
Paid up addition
Accumulate with interest
Reduce remiums
One year term fifth dividend
Life insurance settlement options
Per brandenberg
Cash
Refund option
period certain and life
pure life or single life
Specified period
Specified life
Stop loss versus stop loss limit
What are they and which is better for the insured or insurer?
Stop loss. Better for the insurer
Maximum out-of-pocket cost the insurED will have to pay
Stop loss LIMIT better for the insurED
Amount of expenses after the deductible that are SPLIT between the insurer and the insured
Annuity and mec dates
Annuity after 8/13/82 taxed as LIFO
Mec after 6/21/88.
Single premium Life Insurance after 88 treated as MEC. distributions taxed as LIFO
Because obviously it fails the 7 pay test
What can dividends on participating life insurance policies be used for?
Dividends on participating life insurance policies may be:
taken in cash. used to pay a portion of the next premium. left to accumulate interest. used to purchase single-premium, PAID-UP additions. used to purchase one-year term insurance (fifth dividend option).
Annuity withdrawals
And exceptions to penalty
Lifo
Remember that an immediate annuity can start between 1 month and 12 months
Penalty exceptions annuity withdrawals
Immediate NQ annuity
Susbt = pmts for greater of 5 years or until 59.5
Death
Disability
Annuity payout tax treatment
Apply exclusion ratio
Basis/PMT*months to receive based on life expectancy
BuySellWaitSee
“BOB”
Business has 1st option
Owner= SurvPartner can buy if business waives or buys less than half
Business has to buy if surv partner does not
COBRA
>=20 employees
EE,SP,DC
18 months termination EE,SP,DC
29 months SSDI
SP, DC 36 months
Death, divorce, EE in Medicare
DC 36 months
Loss of DC status (ie turn 26)
Must pay premiums MONTHLY
Cannot exceed 102%
Universal Life
Option A vs B
A - DB remains level
B - DB is face plus CF
Universal Life
Fixed,Variable, and Indexed
Variable has cash value sub-accounts which give owner investment choices
Basics of life insurance
Term. Lowest premium for FV
Universal. Most flexible
Whole. Most guarantees
S1035 pyramid
Everybody. (Exchange)
Loves Elizabeth as Queen
Down but not up
Life
Endowment
Annuity
QLtci
Annuity matrix: how purchased
Installment premium
Single premium
Flexible premium
Annuity matrix: how purchased
Installment premium
Single premium
Flexible premium
Annuity matrix when payments begin
Immediate annuity
- one month to 1 year
Deferred
Annuity matrix how funds are invested
Variable
Fixed
Equity indexed
Forms of payment
3 main
Withdrawals
- full or partial or systematic
Life annuity
Annuity certain
- fixed period
- fixed income
Annuity matrix lives covered
Single
Multiple
- joint life
- joint and survivor
-full
-2/3
-1/3
Annuity matrix guaranteed minimums
REFUND
-lump sum
- installment
PERIOD CERTAIN
-5 yrs
- 10
-15
-20
Cross purchase buy sell
Number of policies
Face value of each policy
In what situations is it advisable
N x (n-2) number policies
Value of company divided by $ policies = amount of each.
Good for small amount of partners who are around the same age
Death benefit passes tax-free to surviving owner
Increase in basis to the surviving owner is the primary advantage over an entity purchase
Entity purchase
Also known as doc redemption plan
Preferred solution with many partners
DB passes tax free to the business
Business pays policy premiums
Disadvantage. Does not increase basis (no step up)
So surviving owners will have more gain when they sell the business
What is generally the default risk
Risk retention
Bc ppl don’t even realize they have the risk until something happens
HSA
20% penalty for nonmedical but goes away at age 65
BUT it IS taxable if not for medical
Age 55 catch-up
Can use for LTCi but not for medical or dental premiums
Deductible counts towards Mac out of pocket
See picture
Definitions
Risk Mgt approaches
Indemnity
Insurance contract compensates you for any damage loss or injury caused only to the extent of loss incurred
See picture
Medicare and nursing home
Only covers skilled nursing IF after a hospital stay.
1st 20 days no copay
Then you pay 204 and they pay rest until
101 days. ZILCH
Medicare does NOT pay for custodial care
Qualified long-term care
8 requirements
For tax free benefits
Tax-free benefits if qualified
Required features include
1.Benefit payable only to a qualified long-term care
2. Contract must be guaranteed renewable
3. Contract does not pay or reimburse expenses reimbursed under Medicare. No double dipping
4. No cash surrender value
5.Dividends cannot be paid out they can only be applied to premium or increase future benefits
6. No limitations or exclusions except pre-existing within 6 months of application
7. Contract cannot require prior hospitalization or provide skilled nursing only
8. 2-year incontestable clause for misrepresentation
Ltci Benefit triggers
Two of six ADLs OR substantial cognitive impairment
-Either of the above required doctor certification of condition
-ADLs require condition to last 90 or more days
ADLs
B e d c o t
Bathing Eating Dressing Continence
ON OF Toilet
Transferring
Qualified Ltci for tax benefits
Tax-free benefits
Deduct premiums on schedule a, limited
Can use HSA to pay premiums
EmployER paid premiums are tax-free and benefits remain tax free
Private annuity
What???
Private annuity payments are unsecured promises to pay a monthly fixed payment to the seller for life and are received by the seller as a tax-free return of adjusted basis, capital gains, and interest taxed as ordinary income
Social security disability
Adults over 18 unable to work due to physical or mental disability that is expected to last at least 12 months
or
result in death
Homeowner’s insurance
See attached
Property part 1 a b c d
Address backyard contents damage destroyed digs
Property part 2 EF
exposure to legal action and funds for fractures
Standard h05 typically provides coverage for contents at a limit of 50% of the part A dwelling coverage unit
Named perils vs open perils
Name specify what perils are covered the rest is not
Open peril specify what is excluded the rest is covered
You want OPEN
H03 and h05 are both open dwelling but 8
H03 is named contents versus h05 is open contents
Homeowners. The 3 Home
H02 is broad, basic
H03 is special, better
H05 is comprehensive, BEST
H03 + h 015 equals h05
The h015 adds open perils for contents
Renters insurance
4 rent. h04
broad contents and liability
94 we rented. 4 rent
95 we owned. 5 is best homeowners
Condo
Ho6 ,”unit owners”
Condo/coop
Older historical homes
H08 modified
Know the name modified
Auto insurance PAP
Parts
part A liability
Max 1 bodily/max all bodily/max property
Part D damage to your auto
Collision accident
Comprehensive
Hitting a deer is on comprehensive!
What can you do with dividends on participating life insurance policies
Per the bif qbank
Taking cash
Used to pay a portion of the next premium
Left to accumulate interest
Used to purchase single premium paid up additions
Used to purchase one year term insurance 5th dividend option
So can’t purchase a single premium immediate annuity??
Index annuity
Per bif qbank
Provide a return on the assets invested that is tied to a market index
There’s often a participation rate and cap on these contracts
For example the contract will pay interest equal to a stated percentage of whatever the index achieves over a certain period but the overall return may be capped
Also there may be a floor limiting potential losses associated with the index
LTCi features and benefits 6
BENEFIT PERIOD
Specific time frame or
pool of money option
Under pool of money the policy lasts longer than the stated. If the cost of care is less than the maximum daily benefit
ELIMINATION PERIOD
0-365
DAILY BENEFIT
RIDERS. Inflation protection most important
WAIVER of PREMIUM
RENEWABILITY
LTC locations
Skilled nursing
Higher level than ALF.
Has rehab, 24 hr
ALf. Residential personal Care health support
ADC. Residential socialization structure supervision might include medical management
Custodial is nonmedical
Adc, home health
Home health aide
Personal Care non-medical Hands-On approach
Homemaker household task and errands a hands-off approach
Medicare does not pay for long-term custodial care and they only pay for skilled nursing limited time following hospital stay
LTC tax benefits
Benefits or tax-free
Can pay premiums from HSA
*Premiums paid by employers are tax-free to employees AND benefits remain tax free
Premiums are qualified medical for schedule A
LTC partnership with states
Asset protection for medicaid
Provide additional asset protection if the benefit is exhausted and the insured files for Medicaid
The total amount paid under long-term care is added to the Medicaid spend down limit and protected
Non forfeiture extended term option
Same DB, uses up CV
Use the cash value as a single premium to pay for term life insurance for as long as the cash value will support the stated death benefit. No residual cash value
Maintains the original death benefit but may not last to life expectancy.
Non forfeiture Reduced paid up
Lower DB retains a CV
Use CV to buy a paid-up policy of the same type
reduced DB but retains CV that will grow throughout the life of the policy at a reduced rate
Non forfeiture option automatic premium loan
Automatic premium loan alternative that allows for a loan against the policies CV for paying the overdue premiums provided the CV is more than or equal to the premium amount due.
Avoids a lapse
Any automatic premium loan is added to any other outstanding policy loan and the unpaid loan plus accrued interest is subtracted from the DB
Viatical settlements
Terminally or chronically ill
Terminally ill certified by physician death within 24 months
Chronically ill unable to perform two of six ADLs for at least 90 days
Must be a 15-day cooling off.
Viator is the owner of the policy
Viatical settlement company pays ongoing premiums and receives future death benefits
Amounts received by the insured are excluded from gross income if terminally ill. If chronically ill benefits excluded to the extent I used for LT care services
Basis to the viatical settlement company is cash paid plus subsequent premiums at death the amount received in excess of basis is taxable to the biatical settlement company
Pure risk
Chance of loss or no loss
No chance of gain
Like a flood or earthquake
Moral vs morale hazard
Moral is conscious intentional actions or fraud to take advantage of insurance coverage
Morale is subconscious. A passive disregard
Leaving doors unlocked
Aleatory contract
an insurance agreement, the insured pays a premium to the insurer in exchange for financial protection against uncertain events, such as accidents, property damage, or illness.
Contract of adhesion
One party prepares the contract. The other has little power. Take it or leave it. Most insurance contracts
Vicarious liability
Can be held liable for torts of another.
Like Parent of child
Joint and several liability
Negligence caused by one or two or more parties. Each party may be held fully liable. The party paying more than its own legal share can seek contribution from the others who have not paid their proportional share.
Speculative risk
Involves both the chance of loss or gain, such as gambling. Speculative risk is not insurable.
Static risk
Losses caused by factors not related to the economy (e.g. death of the family breadwinner). These tend to occur with regularity and can be insured against.
Negligence per se
The act itself constitutes negligence, thereby relieving the burden to prove negligence.
Driving the wrong way down the highway
Absolutely liability
Liability without regard to negligence or fault.
Example your dog bites the mailman
Peril
Anything that causes a financial loss.
Wind, fire, theft
Strict liability
Liability for damage resulting from some extraordinarily dangerous activity or other statutorily defined activities. Negligence does not have to be proved; however, defenses may be allowed to refute or lessen liability.
Most traffic violations
Unilateral contract
An insurance contract is a unilateral contract. Only the insurer promises to do anything, as there is no promise for the insured to pay the premium.
Hazard
A condition that serves to increase the frequency or severity of perils.
Gasoline soaked cloth
Adverse selection
The likelihood that parties with the greatest probability of loss are the ones who most desire the insurance. Insurance seeks to avoid adverse selection.
Sick person getting health insurance
Collateral source rule
Holds that damages assessed against a negligent party should not be reduced simply because the injured party has other sources of recovery available (such as insurance or employee benefits).
SSDI
Remember some of this could be taxable
watch the total income
Is it the 2534 32 44 formula
Own occupation
You receive benefits of your unable to work in your own occupation even if you find employment in another profession
Which type of policy is considered pure protection
Whole
Universal
Term life
Term because it is generally insurance only no savings component
Medicare and hospital
Pays full cost for 60 days
After 150 it’s all on the patient
Guaranteed renewable versus non-cancelable
With a guaranteed renewable the insured has the right to renew for a stated number of years. The insurer cannot change the premium unless the change is made for an entire class of policyholders
Non-cancelable gives the insured the right to renew for a stated number of years with a guaranteed premium at renewal
Social security claiming on another’s record
Shoot I can’t attach photos anymore. I have a chart in my Excel summary file and downloaded to photos on 11.21.24
