Insurance Flashcards
What is excluded from Umbrella liability coverage?
- Intentional Acts
- Your own stuff
- Business pursuits
- Worker’s comp obligation
- Malpractice
- D&O activity
What does each category of split limit auto coverage cover?
(A/B/C)
A - Limit for any ONE injured body
B - Limit for ALL injured bodies
C - Limit for ALL property damage
Auto Policy Coverage Categories
“Let Me Understand Dis”
A - Liability
B - Medical pmts
C - Uninsured motorist
D - Damage to auto
Insurance Non-forfeiture options
- Cash; cash value (-) loan
- Reduced Paid-up; lower DB
- Paid-up Term; same DB, less time
What are common benefits under a Cafeteria Plan?
- Term life (x2 salary)
- Medical Insurance
- Disability
- 401k
- FSA
Medicare B Exclusions
- Eyes, ears, mouth
- Dental, eyeglass exam, hearing exam
- Shots (1 free flu/yr; 1 free pneumonia/yr)
- Rx
What does Medicare B cover?
A - Dr. Services
B - Tests, Transfusion, Infusion, PT
C - Outpatient
D - Unlimited home health service
E - Preventative Care
F - Counseling (drug, depression)
HO - 2 Coverage
ALL BROAD
A - Dwelling
B - Structure
C - Property
D - Loss of Use
What is excluded in Sec II of a HO policy?
(Liability Exclusions)
- Boats > 50hp or >26ft
- Aircraft
- Vehicles & Rec Vehicles off property
- Someone eligible for worker’s comp
- Activity from a biz
HO Sec I Exclusions
“OPENN WIF”
- Ordinance (law)
- Power Failure
- Earthquake
- Nuclear
- Neglect
- War
- Intentional
- Flood
SINKHOLE COVERED IF HOUSE DAMAGED
What does Medicare A cover?
A - ≤ 150 Day Hospital stay
After Hospital Stay:
B - ≤ 100 days Skilled Nursing Home
C - Unlimited home health service
D - Hospice
E - Blood AFTER 1st 3 Pints
What is excluded from Commercial Umbrella liability coverage?
Professional Liability
- Error/Omission (financial dmg.)
- Malpractice (bodily dmg.)
Capital Retention Life Insurance Formula
(Annual Income need/ROR) + 1st year of income need = Total Life Insurance Needed
HO - 4
Renters Policy “Broad city rented”
C - Broad
D - Broad (30% of C)
No A
No B
Basic HO Coverage
“WHARVES FLT”
- Wind
- Hail
- Aircraft
- Riot
- Vandalism
- Explosion
- Smoke
- Fire
- Lightening
- Theft
Annuity Exclusion Ratio Formula
- Monthly PMT x Life Expectancy (in Mo.) = Expected Return
- TTL Premium Paid / Expected Return = Exclusion Ratio
NOTE: Annuity PMT x Ex. Ratio = TAX-FREE AMT
HO - 6
Condo Owner
A - Limited (loss assessment)
C - Open
D - Broad (50% of C)
No B
YES $5k loss assessment coverage
HO - 8
Old House
BASIC
A - Dwelling
B - Structure
C - Property
D - Loss of Use
What is Broad HO Coverage?
*Basic coverage +
“RAFF”
- Rupture of a system
- Artificial Generated Electricity
- Falling Objects
- Freezing Pipe
*Basic:
- Wind
- Hail
- Aircraft
- Riot
- Vandalism
- Explosion
- Smoke
- Fire
- Lightening
- Theft
HO - 5
A - Open
B - Open 10% of A
C - Open 50% of A
D - Open 30% of A
HO - 3
A - Open
B - Open 10% of A
C - Broad 50% of A
D - Open 30% of A
HO - 5 with worse Property coverage
What is covered in HO Sec I
A - Dwelling
B - Structure
C - Property
D - Loss of Use
Real Property Loss Formula
- Replacement cost x coinsurance % = Required Insurance
- [(Ins. Carried/ Required Insurance) x Loss] - Deductible = Amt. Paid by Insurance
ACV Property Loss Rule
IF:
Insurance carried is < 80% of replacement cost
THEN:
Use GREATER of:
- ACV
- Amt. Paid by Insurance (Real prop loss formula)
What is excluded in Sec I part C of a HO policy?
- Pets/Animals
- Motor vehicles/Aircraft
- Property belonging to renters
- Your property in a space you rent out
HO - 1
BASIC
A - Dwelling
B - Structure
C - Property
D - Loss of Use
What does a Business Owner’s Policy (BOP)
1. Cover
2. Exclude
- Covers
- Real property
- Contents
- Liability (medical pmt) - Excludes
- Professional Liability
Negligence
“All Nice Students Avoid Violence”
- Attractive Nuisance: pool on property
- Negligence per se: violate a statute
- Strict liability: product recall, pet bites someone
- Absolute liability: worker’s comp
- Vicarious liability: insurance co. to agent
Defense against Negligence
- Assumed Risk: knew skiing was risky
- Contributory Negligence: jaywalking while hit
- Comparative Negligence: 40% your fault
- Last Chance: could have swerved but didn’t
COBRA Coverage
Job-related: 18 months
Non-Job-related: 36 months
+11 Months if disabled within 60 days of event
PPO Keys
- Pay per service
- Not required to stay in network
- Higher deductible than HMO
HMO Keys
- Monthly fee
- Gatekeeper primary care physician
- Not covered out of network
Medicare Supplemental for CFP
Adding Medicare Supplemental is almost always the right answer if asked
PAP “Other Than” Collision Coverages
- Glass
- Wind
- Hail
- Animal
- Riot
- Vandalism
- Earthquake
- Explosion
- Falling Objects
- Fire
- FLOOD
- Theft
HO - 15
Rider to add additional coverage to personal property
Add HO - 3
HO Sec II
E - Personal Liability (E = Esquire. getting sued)
F - Medical (F = First Aid)
Parts of an Insurance Contract
“DICE”
Declarations: Facts about interested parties
Definitions: Key terms
Insurance Agreement: Promises of Insurance Co.
Conditions: Rights/duties of both parties
Exclusions: When Insurance Co. won’t pay
Risk Management Technique Suitability
High Severity/Low Frequency - Transfer
High Severity/High Frequency - Avoidance
Low Severity/Low Frequency - Retention
Low Severity/High Frequency - Retention/Reduction
Insurable Risk Characteristics
- Big enough group of similar risks
- Loss is definite & measurable
- Loss is accidental
- Loss not catastrophic to Insurance Co.
When is a company required to offer COBRA?
- Offer group or self-funded health coverage
- > 20 Employees (FT & PT)
HSA Keys
- DEDUCTIBLE (Employer & Employee)
- YES Qualified LTC premiums
- Non-qual. dist = 20% penalty
- TOD tax-free to spouse, ord. inc. to non-spouse
Health Reimbursement Arrangement Keys
C-CORP ONLY!
- 100% Employer-funded
- Employer reimburses employee for medical expenses
Total Disability Designations
Own-occupation: Can’t perform your job
- Highest premium
Modified own/any: Can’t perform job within your experience/skill set
Split: Own-occupation in 1st phase, Modified in 2nd phase
Disability Continuance Provisions
Noncancelable:
- Can’t lose coverage from claims
- Premium is fixed
Guaranteed Renewable:
- Can’t lose coverage from claims
- Premium may go up
Social Insurance Substitute Benefit
(SIS)
- Disability rider to protect against Social Security disability claim
- If SS pays full disability claim, SIS does not pay
Disability Premium/Benefit Taxation
Employee pays:
- Premium: Deductible
- Benefit: Tax-free
Employer pays (Bonus/Sec 162):
- Premium: Employer deductible
- Benefit: Tax-free
Employer pays (Salary continuation/Group Plan):
- Premium: Employer Deductible
- Benefit: TAXABLE
Note: Sec 162 “Bonus”, Group plan “Salary continuation”
Partnership Disability Premium Benefit/Taxation
Partner or >2% S-Corp owner:
- Premium: Business deductible
- Benefit: Tax-free
Medicare Skilled Nursing Coverage
Day 1-20 = 100% Medicare
Day 21-100 = Co-pay
Day 101+ = 100% Patient
Human Life Value Analysis
- Considers PV of lost income for dependents
- No other assets are considered (existing life insurance, investments)
LI Contract Provisions
(No Added Premium)
- APL: Lapsed premium paid from cash value, reduces policy values
- Grace period: Have 30days extra to pay premium
- Reinstatement clause: Can continue coverage after a lapse, with some conditions
- Misstatement of age: Ins. Co. will adjust age and then DB
- Incontestability clause: After 2yr. policy is yours (except for fraud)
- Suicide clause: DB not paid out if suicide within 2yr of issue
Automatic Premium Loan
- If elected, cash value will pay lapsed premiums
- Remaining cash value and DB will be reduced
Reinstatement Clause
- If policy lapses, you can continue coverage
- Conditions:
- Proof of insurability
- Pay missed premiums in arrears
- Pay interest charged on missed premiums
LI Dividend Options
“CRAPO”
- Cash: Paid to insured tax-free
- Reduced premium: Dividend applied to premium amt.
- Accumulate with interest: Stays with insurance co.
- Interest paid is taxable
- Paid-up: purchases small amt. of additional policy
- One-year term: purchases one year of term
- “5th Dividend option”
LI Settlement Options
- Cash: Lump sum paid to bene
- Interest: Temporary hold of DBl, interest paid only
- Interest is taxable
- Fixed period: Up to 30yrs
- Fixed amount
- Life Income: Same options available as annuity (straight life, joint life, period certain, life w/ period certain)
Whole Life Surrender Taxation
When surrendered:
(Cash Value + CV of Paid-up Add) - Cost Basis = Ordinary income
Dependent Care FSA Keys
- Max. Tax-free reimbursement of $5000/yr
- Only available for two working spouses
- One spouse ok if other is disabled/student
- Tax-free reimbursement reduced eligible expense for dependent care credit
Health FSA Keys
- Employee pre-tax deferral limit of $3,200
- NO LTC
- NO FICA
- Plan may have 2.5mo grace period
or $640 rolling balance NOT BOTH - Cont. not included income
Home Replacement Cost
80% of Home value net of land
Unholy Trinity - LI
Three different people are: Owner, Insured, Bene
- DB is treated as taxable gift to bene since owner had rights to value (could have changed bene)
ACV Formula
ACV = Replacement cost - Depreciation
If no depreciation info given, ACV is wrong answer!
Worker’s Comp Benefits
TAX-FREE
- Medical expenses
- NO deductible, co-pay, time/$ limits
- Disability income - short wait, limited benefit (66% of comp)
- DB to family
- Rehab: Medical & Vocational
SSDI Elimination Period
5 months. - Paid month 6
Disability Insurance Provisions
- Residual benefits: PMT = % of income lost
- Partial disability = Partial PMT if less than total disability
- Waiver of premium = No premium due if ttl disability for long time
- SIS = covers gap (if any) in SSDI benefit
When are LTC Premiums tax deductible
- Qualified LTC policy
- Part of itemized deductions (over 7.5% AGI; age-based cap)
SE - no AGI limit, still age-capped
NO Insurance 1035 when…
- Annuity → Life
- If insured changes
Whole Life Keys
LOW RISK TOLERANCE
- Fixed premium/guaranteed DB
- Cash value grows at guaranteed rate
- Dividends paid if participating
- Loans available against cash value
Universal Life Keys
LOW RISK TOLERANCE
- Flexible premiums/adjustable DB
- Cash value grows at declared rate
- Policy will lapse if costs exceed cash value
Variable Life Keys
HIGH RISK TOLERANCE
- FIXED premiums
- Cash value in subaccounts (market risk)
- Min. DB Guarantee
- No guaranteed cash value
Variable Universal Life Keys
HIGH RISK TOLERANCE
- FLEXIBLE premiums/adjustable DB
- Cash value in subaccounts (market risk)
- Min. DB Guarantee
- No guaranteed cash value
Viatical Taxation
Insured:
- SALE PRICE = TAX FREE (INCLUDED IN GROSS ESTATE)
- DB = NOT IN GROSS ESTATE
Viatical Co:
- Ordinary income on gain: DB (-) SALE PRICE
Transfer for value rule
IF:
Policy transferred for something of value (cash, property, services, etc.)
THEN:
DB is taxable
Transfer for value exceptions
- To the insured
- To a partnership
- To a Corp (insured is officer/shareholder)
- Divorce decree
MSA
No new after 2005
- Contributions deductible (don’t have to itemize)
- Cont. made by employer/employee but not both in same yr
- Employer cont. not included as employee income
Medicare B Premium/Deductible Keys
- YES monthly premium
- $240/yr deductible 20% co-pay after
- Premiums tax deductible!
- 100% for SE
- Sched A if itemized (over 7.5% AGI)
Medicare A Premium/Deductible Keys
- NO premium
- In-patient care:
- flat deductible
- Day 1-60 = NO copay
- Day 61+ = YES copay
Medicare D Keys
- Cover outpatient drugs
- Must have Part A and B
- Flat deductible, then copay
Life Settlement Taxation
Premium (-) COI = BASIS
Sale (-) Basis = GAIN
Cash Value (-) Premium = ORD INC.
Gain (-) Ord Inc. = LTCG
MEC Taxation
- Withdrawal/Loan are LIFO + 59 1/2 penalty
- Cash dividends taxed as ord inc.
BOE Taxation
Covers ongoing biz cost at owner disability
- SE: Premium deductible; benefit taxable
- C or S Corp: Premium NOT deductible; benefit TAX-FREE (excluded from gross income)
VEBA Keys
Employer-funded trust for employee benefits
- Contribution tax-deductible
- Earning in trust = tax-free
- Health benefits to employees = tax-free
- Non-health benefits = taxable
Employee Taxable Benefits
- Pre-paid legal service
- Vision plan
- Group permanent premiums
- Group term premiums over $50k DB
- 162 Bonus
Endorsement v Assignment Split-dollar
- Endorsement: Employee taxed on COI, not on premiums
- Assignment: Employee taxed on loan interest, not on premiums
