Insurance Flashcards
Basic forms of peril
Windstorm
Hailstorm
Aircraft
Lightning
Explosion
Riot
Smoke
Fire
Vehicle
Theft
Vandalism
How is Insurance risk assumed by insurance company?
-large number of homogenous exposure units to make loses reasonable
-the loss produced by the risk must be definite and measurable
-the loss must be fortuitous or accidental
-the loss must not be catastrophic to the insurance company
Self insurance
A formal program of risk retention
A large company will take on it’s own risk
Advantages of self insurance
Avoid costs associated with commercial insurance
Reserves can be invested in short-term vehicles.
Can offset the cost of the program
Disadvantages of self-insurance
Obviously the cost
But the taxes on the invested assets
What are the Basic rules of risk management when talking about plans? severity is more important than probability
Coverage for catastrophic events should be purchased first
Life insurance
Disability
Health
Home owners
Auto
Severity is more important than probability
High probability will mean high premium or decline of coverage
What risk management style is an HSA?
Risk retention(high deductible paid)
Risk transfer(insurance)
High loss severity low loss frequency
Risk transfer buy insurance
High loss severity high loss frequency
Risk avoidance- high premiums or declined
Low loss severity high loss frequency
Retention and reduction- high frequency equates to high premiums
Low loss severity low loss frequency
Retention because when lost it won’t cost much and not be a big deal
The four principles supporting indemnity for insurance
Insurable interest
The concept of the actual cash value
Other insurance (no profit from a loss)
Subrogation(ability for insurance company to try to collect on losses)
Cross purchase
Needs to be owned on the other partner or shareholder, not self
Insurance Waiver provision
Only president, vice president, secretary may alter a contract. Agent has no right to alter
Aleatory contract
Lopsided contract-May pay large premiums and receive nothing
Conversely the insured may pay low premiums and get a large payout
Rescission
Null due to fraud, misrepresentation, concealment or mutual mistake to a material fact
Reformation on life insurance contracts
When the contract between parties fails to meet original intent, the contract can be amended
Insurance Collateral source rule
Just because someone has their own insurance they can still seek collection from the person at fault
Conditions in insurance contract
Notice of loss requirement. This part spells out the duties and rights of both parties
Stop-loss insurance company
A relatively small company, under 100 employees, may use a stop-loss and insure up to $250k per employee. Claims above will be paid by insurance company
$250k is the responsibility of company, employee and should reduce healthcare costs
What are major Personal risks?
Death
Disability
Health
Unemployment
Superannuation (outliving money)
What are the three Property risks?
Real property
Personal property
Auto property
What are the three forms of Legal Liability?
Negligence (unintentional tort)
Intentional tort
Strict liability - speeding but didn’t intend to speed, still ticketed
Tort
A wrongful act other breach of contract which civil action can take place
Intentional tort
Deliberate
Assault, battery, libel, slander, false arrest
Unintentional tort
Negligence or carelessness
Attractive nuisance
Swimming pool
Piece of land where a high degree of care is required
Negligence per se
Standard of care is set by statute
School zones and cross walks
Strict liability
Limited to manufacturers and producers
E. coli on lettuce and car defects
Absolute liability
Extra hazardous condition
Keeping wild animals and blasting
Vicarious liability
Manager responsible for brokers
Failure to supervise
Assumption of risk
A party recognized the risk, cannot put fault on another party for injury
Contributory negligence
Negligence on party for injury.
Jay walking and driving while drunk
Comparative negligence
Mitigating damages
20% responsibility
Other party 80% responsibility
Last clear chance
Had clear chance to prevent the accident but failed to do so
Road rage
Capital utilization for life insurance
Utilizes all capital
Factors annuitization to fund future income needs
Leaves no money at the end of anticipated distribution period
(Cal the PV of FV need)
Capital retention or capital preservation method
Presumes that only interest is distributed. The original capital is still left at the income period
How much is needed for life insurance
PV needed for income + amount needed
(Amount needed/rate) + amount needed
How much is needed for life insurance with inflation
PV needed for income + amount needed
(Amount needed/(rate-inflation)) + amount needed
Retained risk
Paying deductible is a form of retained risk
Property on property would be covered
An earthquake would have high severity
What does Liability insurance or umbrella insurance do?
Covers most unintentional accidents
Does not cover intentional acts
Assault
Medicare starts
At 65
Can retire at 63.5 and receive COBRA
Insurance Industry ratings
Advisors should choose a company that holds one of the three highest ratings from at least three of the rating services
AM Best A++ to F
Standard and poor AAA to CCC
Moody’s Aaa to C
Weiss A+ to F
AM Best
Is the only rating agency that provides detailed historical data on insurance carriers
Respondent superior
Is vicarious liability
Superior at fault for workers
Most important for selecting an insurer
Policy types offered
Rating
Homeowners insurance covers
Dwelling
Contents
Personal liability
Declaration page on insurance policy contains
Name, address, etc
Section I of homeowners policy
A. Dwelling
B. Other structures
C. Personal property
D. Loss of use
Section II on homeowners policy
E: Personal liability
F: Medical payments
Dwelling section I covers
Dwelling and any attached structures (garage, deck, fence)
Covers material and supplies located on or next to the residence
Land is specifically excluded
Coverage for B: other structures
Detached garage, outdoor swimming pool, patios
Renters coverage does not provide A and B
Coverage C: personal property
Personal property is covered anywhere in the world
Policies have sub-limits
$1000 for watercraft furs and jewelry
$2500 for silverware
$200 for money/bullion
Property excluded from home insurance policy
Pets
Motor vehicles/aircraft
Property of roomers and boarders
Property in apartment rented to others
Homeowners will typically not cover exposures to landlords (endorsements may be added)
Coverage D: Loss of use
Makes the insured whole for the loss of use of the property
Temporary housing and eating out
Section II Coverage E Personal Liability
Protection for damages for which the insured is legally liable out of bodily injury or property damage
Section II Coverage E Personal Liability Insurance Company will
Defend the insured and has a right to settle any suit
Section II Coverage E Personal Liability Insurance Company exclusions
Liabilities arising from:
business activity
Use of motorized land vehicles( not golf cart or recreational vehicles)
Usage of watercraft (not over 50 horsepower or a sailboat less than 26 feet)
Aircraft
Bodily injury to any person eligible for workers comp
Section II Coverage F Medical Payments
Limited coverage (1000/5000) per person not the insured
Not liability coverage
E and F are in all policy types even renters
Recreational vehicle
Covered only if on property
Broad form perils
Everything in basic perils Whalers FV TV
Rupture of system
Artificial generated electricity
Falling objects
Freezing plumbing
Royal Air Freedom Force
Open perils
Insurer agrees to pay for any open peril except excluded
Open perils is usually the choice on the exam because it covers unusual risks that are not named
HO-1
Dwelling-basic for A, B, C, D
HO-2
Home Broad ABCD
HO-3 and HO5
Home-open, more comprehensive
Open 10% of A B
Broad 50% of A C
Open 30% of A D
Only difference is HO5 changes to open for personal property
HO-4
Renters
Covers broad C
Broad 30% C D
HO6
Condominium
Some coverage for A and B (named perils) $5000 loss assessments coverage
Condo association covers structure
Interior
Coverage A and C can both be changed by endorsement to apply on an open-perils basis (best answer)
HO7
Mobile home
HO8
Older homes/victorian-basic ABCD
Home Insurance Exclusions
Openn wifi
Ordinance of law
Power failure
Earthquake
Neglect
Nuclear hazard
War
Intentional loss
Flood
Sinkhole is covered if it affects the stability of the house
Personal property endorsement or floater
Considered coverage of open perils
Usually limited on certain items- golf clubs
Each item is appraised, listed separately and insured for a specific value
What is a typical Replacement cost coverage?
Dwelling is typically be replacement cost coverage not actual cost
Actual cash value
Is replacement cost - depreciation
The original cost is immaterial in calculating of acv
Personal property is typically acv
Problem is acv may not receive enough to replace the item
Property loss calculation
Less than 80% of dwelling replacement cost use acv
When the amount of the dwelling is greater than replacement cost, ACV is not used
Replacement cost * coinsurance %=insurance required
(Insurance carried/insurance required)* loss)- deductible =amount paid by insurance
Why would someone be underinsured?
Cost of property raised faster than coverage
Actual Cash Value-ACV If depreciation is not given
ACV cannot be determined
For homeowners required amount is always 80%, commercial is 90%
All calculations are usually for partial loss
Use 80% if no information is given
Auto coverage example
A. Liability 100k per injured person
$300k per occurrence (all persons)
$50k property damage
B. Medical payments
$5k per person
15k per occurrence
C. Uninsured motorists
$100k per person
$300k per occurrence
D. Damage to your auto
Collision loss $500 deductible
Other than collision $500 deductible
The upset of your covered auto or its impact with another vehicle or object
Temporary substitute vehicle coverage
Only applies to ABC
Who is covered for Personal auto policy (PAP)?
The named insured, family member living in hh, any person using car with permission, and the spouse if living at residence
Spouse still covered until the earliest of the following:
The end of the 90 days following the spouse’s address change
The effective date of spouse’s new policy
The end of the policy period
Auto liability exclusion
Insurance companies will deny coverage to anyone who intentionally causes an accident
Denies coverage to anyone outside of family using your car without permission
Uninsured motorists C
Does not cover punitive or exemplary damages
However love one seeking medical care for mental distress may be covered
Claims adjustment procedures for property insurance
Furnish notice to insurer promptly
Investigate the claim
File a proof of loss with insurer
Pay or deny the claim
Options of the insurer with a claim
Replacement option-replace with like kind quality
Abandonment or salvage-insured must give property to insured for total loss to be claimed
Pair or set-insurer may repair or replace any part to restore to the property’s value
Commercial umbrella policy
Most umbrella policies exclude any e&o, malpractice or mistakes of a professional. THE PREMIUM IS DEDUCTIBLE for business owners.
Workers comp
Owners are typically excluded
Premiums are deductible
Absolute liability
Exception to the rule where there can be no liability without fault
Workers comp benefits
Medical expenses without limit on time or money
No deductible or copayments
Disability with short waiting periods (days) total and partial
Benefits are 66 2/3% of employees weekly pay, subject to min and max amounts
Tax free
Death benefits are paid to the family
Rehab includes medical and vocational rehabilitation
Unemployment insurance
Benefits are determined by previous earnings, payable up to 26 weeks (plus 13 weeks for high unemployment periods)
Unemployment benefits are usually taxable
Sick pay Disability and unemployment benefits
Could be taxable in a workmen’s compensation issue
FUTA
Is the unemployment tax the business pays to the govt. it is also paid to the state
Employer paid unemployment is deductible
Carelessness
Is not an exclusion, intentional neglect is
H02 and HO3
Would have coverage of an attached garage section A and a detached garage section B
Insured involved in a not at fault hit and run
Covered for medical, collision and uninsured (sues self)
Section A is only used when he or a covered person is driving his car or his/her property were damaged
Umbrella coverage if under insured
Subtract amount of damages by amount not covered but required
Board negligence
Can be sued that’s why the board should urge management to take action
As well as the board to buy directors and officers coverage
Health insurance coverage calculation
Deductible is paid first and is calendar year
Co-insurance is by a deductible
Breakpoint is the amount need to be paid prior to insurance taking over
Coinsurance
Is needed per person, not for a family
Affordable Care Act
Allows for continued coverage regardless of claims as long as premiums are paid
With many policies, the premium can and will increase on renewal
Traditional Medicare
Hospital Insurance Protection (PART a)
Medical Insurance Protection (Part B)
Medicare part A
All persons 65 and older who are entitled (not receiving) social security.
Or monthly benefits under the railroad retirement programs (whether retired or not) are eligible for benefits
Disabled beneficiaries part A and B
Are eligible for benefits after two years, no age requirement
Disabled workers
Spouse of deceased if 50 or older
Beneficiaries are 18 or older because disability started before 22
Disabled qualifying railroad retirement annuitant
Benefits of Medicare Part A hospital insurance
-hospital stays-deductible for first 60 days, then a second deductible for next 30 days, then 3rd deductible next 60 days. Limited to 150 days
-Post hospital extended care in skilled nursing home to 100 days
-unlimited number of post-hospital home health services
-hospice care for terminally ill
-patient pays for first 3 pints of blood or donates them; Medicare A covers additional blood
What Limitations exist of Medicare part A hospital ie location and use
No service outside US, Canada, -Mexico, the Caribbean or abroad ship outside us waters
-Medicare A is secondary if other insurance like veterans benefits, workman’s comp or employer benefits are used
Medicare Part B Medical
Is voluntary
Monthly premiums
Pays deductible first
Medicare pays 80% of the approved charges
No stop loss applies
For high earners the Income Related Monthly Adjusted Amount (IRMAA) may apply
This surcharge is based on income from 2 years prior. Applies to B and D
Benefits from Medicare Part B Medical
Doctor’s services include house calls, office visits and doctor’s services in a hospital or other institution
Also covered
-diagnostic tests
-radiology/pathology tests
-treatment for mental illness (limited
-transfusion of blood
-physical and occupational therapy
-drugs and biologicals that cannot be self-administered
-outpatient services
-unlimited number of home health services
-free preventive service ie mammograms and cancer screening, physicals
-depression screening, counseling for alcohol misuse, obesity, behavioral therapy for cardiovascular disease
Excluded from Medicare part B medical
-routine denture and dental care
-exams for eyeglasses and hearing aids
-most immunizations (does cover flu per year)
-prescription drugs
Medicare part D, prescription drug plan
Run by insurance companies
Drug manufacturers typically must offer 50% discount
Must have A and B to get D
Medicaid beneficiaries get prescription drug benefits through Medicare
IRMAA surcharge on income two years prior
Medicare Supplemental (medigap) policy
Pay for the gap of coinsurance and deductibles
Retirees can only be sold one Medicare supplement at a time
Medigap
Need to have A and B
Person 65 and older may buy any available Medicare supplement policy during 6 month period of initial enrollment for Medicare B benefits
Health maintenance organizations (hmo)
Group of subscribers in a wide range of comprehensive health care services in return for payment and delivery features for fixed premium
Capitation
A monthly fee
Gatekeeper
Managed by primary care physician who is responsible for what care is provided and when the individual should be referred to a specialist
Preferred provider organizations (PPOs)
Insurance companies, third parties, or other providers charge a reduced fee
No gatekeeper
Higher charge going out of network
Income tax implication for medical insurance
Tax deductible for employer
Tax free
Benefits are taxable if they exceed medical coverage
Self-employed, partners, and more than 2% shareholders of S corps may be eligible to deduct certain health insurance premiums above the line
For some corps, health care costs need to be reported on w2, still not taxable
Employee benefits analysis and application
A thorough comparison should be undertaken to determine which plan is suitable
Cobra additions benefit if family member is disabled within 60 days of the triggering event
Extended 11 months (for a total of 29 months)
Second circumstance for cobra occurs, any of these events can extend by another 18 months
Death of a covered employee
Divorce or legal separation from covered employee
Covered employee becomes eligible for Medicare
Loss of dependent child status-married or 26
Stipulations of extended cobra events
Must be elected
Election starts on the day of the qualifying event
May not end earlier than 60 days
Premiums must be paid within 45 days
The cost of continued coverages cannot exceed 102% of the cost for the period of coverage for an employee who doesn’t have an event
Medicare part b election for those covered by a workplace plan
May be wise to delay part b medical enrollment
When employment ends-three options
-elect cobra coverage at 18 months at a higher cost
-sign up for B within 8 months without penalty (increased premium after 8 months.
-upon signing up for B, your medigap open enrollment period begins
HSA HDHP criteria
Minimum deductible requirements $1600 for individual and $3200 for family
Max out of pocket $8050 and $16100
Below Medicare age
Not covered by any other plan
HSA catchup provision
55 or older to 65
$1000 catchup
HSA can pay for what premiums
Retiree premiums
health plan coverage while receiving unemployment
deductible requirements
Prescription drugs including otc drugs
Medicare premiums, deductibles copays
Cobra
Employee share premiums for employee based coverage
Ltc premiums
Medigap premiums are not income tax free
HSA inherited
Spouse can treat assets as they are their own ie no tax
Non-spousal treated as ordinary income
HSA rollover from IRA
Once in a lifetime rollover
The election is irrevocable
The change is to give access for IRA balances for medical expenses
Health reimbursement arrangements or gap insurance
Employer funded coverage and reimbursement for substantial medical expenses
Excluded from employee income
No cash out options
HRA money will be used before fsa-can’t be used for the same expense
Conversion plans
Only available for certain circumstances and certain states. Terminating employment may convert
Medicare coverage if husband, 65, retires and wife is 62. Both working
Husband is only covered if both are working
Wife of a person leaving work due to retirement. What are her cobra options
36 months
The best definition of total disability for the benefits
Is own occupation
Inability to preform own occupation
Any occupation
Harder to claim
The insured is unable to engage in any occupation for which the person is qualified by reason of training, education or experience
Split definition
2-10 own OC, 11 to 65 modified any occupation
Loss of income definition
Abandons the effort to define disability based on physical disability event
Partial disability is covered
Continuance provision
Noncancelable or noncan
Cannot be canceled or premiums raised
Usually until retirement age or 65
Continuance provision
Guaranteed renewable
Guaranteed if premiums are paid
Premiums can increase on class basis not individually
One would buy guaranteed renewable for lower premiums now
Continuance provisions for DI
Allow for continued coverage passed 65
Usually a two year benefit
Premium is adjusted for additional years for benefits and age
Only available if insured is working
Benefit period
Usually paid to 65+ but can have a shorter duration
No longer offer lifetime coverage
Elimination period
The longer the waiting period the lower the premiums
Usually 90 days
Presumptive disability
Most policies provide that total disability occurs when sight, hearing, speech, both hands/feet or one hand/one foot are lost
Some policies do not cover all loses
Some policies require the loss to be total and permanent while other cover even temporary loss
Benefit amount
Long-term plans typically cover benefits ranging from 50-60% of earnings
Scaled down as earnings increase
Typically plans are 50-60%
Companies want people to go back to work
Disability underwriting
May be asked for w2 or 1099
Net worth
Current disability coverage
(Not cash flow statement)
Partial disability benefits
Additional benefit at no cost
Insurer wants insured to go back to work asap
Benefits usually start after total disability
6 month period
50% of the total disability benefit
Residual disability rider
Benefits start after total disability Expensive but can be worth it
Can only work part time
60% of income is reduced
Therefore 60% of the total disability amount is payable
Guaranteed insurability option
More disability without underwriting
Could be financial underwriting
Subject to additional premiums
Cola disability rider
Benefits can increase by a fixed or floating amount
Pay more in premiums
Social security substitution benefit
Social security benefit on policy schedule page less any social security paid
5 month waiting period for social security but must wait 12 months because social security if the disability last less than 12 months
Ltc reasons for having it
Group, individual and Medicare don’t generally cover Ltc
Ltc eligibility
Chronically ill person cannot perform at least two adls for a period of 90 days
Cognitive impairment such Alzheimer’s, stoke or brain damage
Six ADLs-eating, bathing, toileting, transferring, dressing, maintaining continence
Ltc services covered
Skilled nursing, intermediate, custodial, home healthcare and adult daycare
Home health care can be 100% of the nursing home benefit
Ltc cola
Can have a simple increase or a compounding increase
Obviously more premium
Most important provision/rider for Ltc
Cola/inflation protection
Ltc is required to be guaranteed renewable
Alzheimer’s and custodial is always covered
Qualified Ltc
Cannot provide cash at surrender
Not qualified therefore Ltc premiums cannot be deducted
FSA cannot pay premiums for Ltc but hsa’s can
Medicare A limitations for ltc
To qualify for skilled nursing benefit
The patient condition requires skilled nursing
The patient has been in the hospital for 3 days in a row before being admitted to skilled nursing facility
Patient admitted within a short time (30 days)
Condition admitted for is same as hospital stay
Medicare part A skilled nursing benefit
First 20 days paid in full by Medicare
21-100 co-payment is required ($204 per day)
After 100 days the patient pays the full cost
To qualify for skilled nursing benefit reimbursement, the patient’s condition must be expected to improve within a predictable time (no Alzheimer’s)
Medicaid assets and skilled nursing
A single individual with less than $2000 of countable assets
Medicaid offers skilled nursing stay over 100 days
Medicaid parameters
5 year lookback period
Can’t have more than $700k of home equity, certain states are $1million
Annuity owner must name the state as remainder beneficiaries
Some states have long-term partnerships programs
A person with ltc can protect assets up to the amount of their ltc policies
Presumptive disability coverage and continuance provision
Is part of the disability policy, no additional charge
Agent writes contract on sick person they weren’t supposed to per insurance company
Implied authority is used. Likely that this wouldn’t underwrite the policy, but if she died in a car accident the insurance company might have to pay
Conditional coverage
Insurance is risk transfer
And risk transfer is insurance
Self insurance, deductibles and co-insurance represent risk retention
A couple that is looking for estate planning life insurance and husband is not healthy
Still consider second to die or survivorship policy. He can still be underwritten and his low life expectancy will lower the second-to-die premium
Guaranteed renewal
A guaranteed renewable provision is an insurance clause that ensures that a policyholder can renew their insurance coverage for a specified period, regardless of their health status or claims history
A guaranteed purchase option (GPO
A guaranteed purchase option (GPO) is a life insurance rider that allows you to increase your coverage without a medical exam or other proof of insurability. It’s also known as a guaranteed insurability rider
