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LMs BIF CFP Review > Insurance > Flashcards

Insurance Flashcards

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1
Q

Life insurance is a gift when

A

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)

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2
Q

Deferred vs Immediate annuity

How long after purchase date is “deferred”?

A

“Immediate” starts b/w 1 month and 1 year

Deferred starts OVER 1 year from purchase date

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3
Q

Exclusion ratio on Annuity payouts

A

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

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4
Q

AIME (SS). Basics

A

Adjusted index monthly earnings
Adjust best 35 years to today’s dollars
(If not 35 years the extra are at 0)

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5
Q

SS: PIA
primary insurance amount @FRA

A

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%

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6
Q

Taxability of social security benefits

A

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

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7
Q

SS provisional income

A

Provisional income
50% of social security
+ Tax exempt
+ AGI before social security

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8
Q

Life insurance non forfeiture options

A

Cash surrender value
Extended term option
Reduced paid up
Automatic premium loan

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9
Q

Life insurance dividend options
CRAPO

A

Cash
Paid up addition
Accumulate with interest
Reduce remiums
One year term fifth dividend

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10
Q

Life insurance settlement options
Per brandenberg

A

Cash
Refund option
period certain and life
pure life or single life
Specified period
Specified life

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11
Q

Stop loss versus stop loss limit
What are they and which is better for the insured or insurer?

A

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

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12
Q

Annuity and mec dates

A

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

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13
Q

What can dividends on participating life insurance policies be used for?

A

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).
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14
Q

Annuity withdrawals
And exceptions to penalty

A

Lifo
Remember that an immediate annuity can start between 1 month and 12 months

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15
Q

Penalty exceptions annuity withdrawals

A

Immediate NQ annuity
Susbt = pmts for greater of 5 years or until 59.5
Death
Disability

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16
Q

Annuity payout tax treatment

A

Apply exclusion ratio

Basis/PMT*months to receive based on life expectancy

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17
Q

BuySellWaitSee
“BOB”

A

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

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18
Q

COBRA
>=20 employees

A

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%

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19
Q

Universal Life
Option A vs B

A

A - DB remains level
B - DB is face plus CF

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20
Q

Universal Life

A

Fixed,Variable, and Indexed
Variable has cash value sub-accounts which give owner investment choices

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21
Q

Basics of life insurance

A

Term. Lowest premium for FV
Universal. Most flexible
Whole. Most guarantees

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22
Q

S1035 pyramid

A

Everybody. (Exchange)
Loves Elizabeth as Queen
Down but not up

Life
Endowment
Annuity
QLtci

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23
Q

Annuity matrix: how purchased

A

Installment premium
Single premium
Flexible premium

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24
Q

Annuity matrix: how purchased

A

Installment premium
Single premium
Flexible premium

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25
Q

Annuity matrix when payments begin

A

Immediate annuity
- one month to 1 year

Deferred

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26
Q

Annuity matrix how funds are invested

A

Variable
Fixed
Equity indexed

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27
Q

Forms of payment

A

3 main

Withdrawals
- full or partial or systematic
Life annuity
Annuity certain
- fixed period
- fixed income

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28
Q

Annuity matrix lives covered

A

Single
Multiple
- joint life
- joint and survivor
-full
-2/3
-1/3

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29
Q

Annuity matrix guaranteed minimums

A

REFUND
-lump sum
- installment
PERIOD CERTAIN
-5 yrs
- 10
-15
-20

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30
Q

Cross purchase buy sell
Number of policies
Face value of each policy
In what situations is it advisable

A

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

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31
Q

Entity purchase
Also known as doc redemption plan

A

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

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32
Q

What is generally the default risk

A

Risk retention
Bc ppl don’t even realize they have the risk until something happens

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33
Q

HSA

A

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

34
Q

Definitions

A
35
Q

Risk Mgt approaches

A
36
Q

Indemnity

A

Insurance contract compensates you for any damage loss or injury caused only to the extent of loss incurred
See picture

37
Q

Medicare and nursing home

A

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

38
Q

Qualified long-term care
8 requirements
For tax free benefits

A

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

39
Q

Ltci Benefit triggers

A

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

40
Q

Qualified Ltci for tax benefits

A

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

41
Q

Private annuity
What???

A

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

42
Q

Social security disability

A

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

43
Q

Homeowner’s insurance
See attached

A

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

44
Q

Named perils vs open perils

A

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

45
Q

Homeowners. The 3 Home

A

H02 is broad, basic
H03 is special, better
H05 is comprehensive, BEST

H03 + h 015 equals h05
The h015 adds open perils for contents

46
Q

Renters insurance

A

4 rent. h04
broad contents and liability

94 we rented. 4 rent
95 we owned. 5 is best homeowners

47
Q

Condo

A

Ho6 ,”unit owners”
Condo/coop

48
Q

Older historical homes

A

H08 modified
Know the name modified

49
Q

Auto insurance PAP
Parts

A

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!

50
Q

What can you do with dividends on participating life insurance policies
Per the bif qbank

A

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??

51
Q

Index annuity
Per bif qbank

A

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

52
Q

LTCi features and benefits 6

A

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

53
Q

LTC locations

A

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

54
Q

LTC tax benefits

A

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

55
Q

LTC partnership with states
Asset protection for medicaid

A

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

56
Q

Non forfeiture extended term option

A

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.

57
Q

Non forfeiture Reduced paid up

A

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

58
Q

Non forfeiture option automatic premium loan

A

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

59
Q

Viatical settlements

A

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

60
Q

Pure risk

A

Chance of loss or no loss
No chance of gain

Like a flood or earthquake

61
Q

Moral vs morale hazard

A

Moral is conscious intentional actions or fraud to take advantage of insurance coverage

Morale is subconscious. A passive disregard
Leaving doors unlocked

62
Q

Aleatory contract

A

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.

63
Q

Contract of adhesion

A

One party prepares the contract. The other has little power. Take it or leave it. Most insurance contracts

64
Q

Vicarious liability

A

Can be held liable for torts of another.
Like Parent of child

65
Q

Joint and several liability

A

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.

66
Q

Speculative risk

A

Involves both the chance of loss or gain, such as gambling. Speculative risk is not insurable.

67
Q

Static risk

A

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.

68
Q

Negligence per se

A

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

Driving the wrong way down the highway

69
Q

Absolutely liability

A

Liability without regard to negligence or fault.
Example your dog bites the mailman

70
Q

Peril

A

Anything that causes a financial loss.
Wind, fire, theft

71
Q

Strict liability

A

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

72
Q

Unilateral contract

A

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.

73
Q

Hazard

A

A condition that serves to increase the frequency or severity of perils.

Gasoline soaked cloth

74
Q

Adverse selection

A

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

75
Q

Collateral source rule

A

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).

76
Q

SSDI

A

Remember some of this could be taxable
watch the total income
Is it the 2534 32 44 formula

77
Q

Own occupation

A

You receive benefits of your unable to work in your own occupation even if you find employment in another profession

78
Q

Which type of policy is considered pure protection
Whole
Universal
Term life

A

Term because it is generally insurance only no savings component

79
Q

Medicare and hospital

A

Pays full cost for 60 days

After 150 it’s all on the patient

80
Q

Guaranteed renewable versus non-cancelable

A

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

81
Q

Social security claiming on another’s record

A

Shoot I can’t attach photos anymore. I have a chart in my Excel summary file and downloaded to photos on 11.21.24

LMs BIF CFP Review (10 decks)

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