Insurance

Question 1

What are risks, perils and hazards?

Answer 1

Risk: The EXPOSURE to a loss (chance or probability).

Peril: The CAUSE of the loss (fire, flood)

Hazard: Increases the risk/probability of a peril (e.g.: live on a fault line)

Question 2

Definition of “indemnity”?

Answer 2

To make whole

Question 3

What is the capital retention calculation for life insurance?

Answer 3

(Yearly amount needed / growth rate)
+ Yearly amt needed (to cover the first year)

Question 4

Insurance Needs Analysis for LI (2):

Answer 4

1. Capital Utilization: All proceeds will be used up; simply add needs (e.g.: mortgage)
2. Capital Retention/Preservation: Only interest is distributed and corpus is intact
   Amt Needed/Interest + First Year

Question 5

Homeowner’s Insurance Policy Types:

Answer 5

Basic, Broad and Open

BROAD: Look at the PIPES on that BROAD to remember rupture and frozen plumbing

HO1: Basic
HO2: Broad
HO3: Open (Broad for contents)
HO5: Open

HO4: Renters
HO6: Condo
HO7: Mobile Home
HO8: Old Home

A
B: 10% A
C: 50% A
D: 30% A

Question 6

What’s the difference b/w replacement cost and ACV?

Answer 6

Replacement Cost ignores depreciation

ACV is the repl cost - depreciation

Replacement Cost is for the home
ACV is for contents

Question 7

What is IRMAA?

Answer 7

Income Related Monthly Adjusted Amt

Based on previous (2) years income
Applies for Parts B & D only (not A)

Question 8

What are the (2) needs assessment methods?

Answer 8

1. Needs Analysis: Compares survivor needs and resources to figure out need.
2. Human Life Value (PV): Only considers lost income stream; it’s the PV of lost income

Question 9

Are insurance dividends taxable?

Answer 9

No b/c they’re considered a return of premium

Question 10

Transfer for Value - what is it and what are the exceptions?

Answer 10

It’s like a viatical in that you’re selling a LI policy; it makes anything above basis (to DB) taxable to the purchaser.

EXCEPTIONS: ICDP (I see dead people) or IDCP (from Marist)

Sell to insured (from company or partner)
Sell to corp (where insured is partner)
Divorce agreement
Partnership agreement/sale

Doesn’t apply to gifts but DOES cause taxable gift

Question 11

What is the exclusion ratio?

Answer 11

In an annuity, it’s the percentage of your payout that’s attributed to basis - you don’t pay tax on it.

Calculation:

1. Monthy pmt * Life Expectancy months = Expected Return
2. Basis/Expected Return = Exclusion Ratio

Question 12

Dependent Care FSA can be used for?

Answer 12

Day Camp (not sleepaway)
Housekeeper
Aupair (incl fees)

MUST BE USED BY 12/31

BOTH SPOUSES must work