Insurance Flashcards
1
Q
Risk
Peril
Hazard
A
Owning real estate
Windstorm
House is on a beach
2
Q
Adverse Selection
A
Tendency of the poorer-than-average risks to seek insurance to a greater extent that the average or better-tan average risks must be reduced
3
Q
Risk Control
A
Risk Avoidance
Risk Diversification
Risk Reduction
4
Q
Risk Financing
A
Risk Retention (Deductible increase or self insurance)
Risk Transfer
5
Q
Basic Rules of Risk Managment
A
Coverage for potential catastrophes should be purchase first (Life, disability, health, homeowners, and auto)
Severity is more important than probability
High probability will mean high premiums or a decline of coverage by the carrier
6
Q
High Severity
Low Frequency
A
Insurance
7
Q
High loss severity
High Frequency
A
Avoidance
8
Q
Low Severity
High Frequency
A
Retention and Reduction
9
Q
Low severity
Low frequency
A
Retention
10
Q
Principle of indemnity
A
Insurance will not give you more than your loss
11
Q
Aleatory Contracy
A
Dollars spent on the contract are unequal
Life insurance is this type of contract
12
Q
Rescission
A
Contract is deemed null from its beginning due to fraud, misrepresentation, concealment or mutual mistake
13
Q
Company has no incidence of ownership in
A
Ross purchase agreements
Relative of key employee
14
Q
Unilateral
A
Only one party is bound; the insured makes no promises
15
Q
Adhesion
A
Contract is accepted “as is” not negotiated
16
Q
Waiver Provisions
A
Only the president, VP, secretary may alter contract; must be accepted as is
17
Q
Assumption of Risk
A
One party recognizes and understands the risk yet still voluntarily chooses to encounter it
18
Q
Comparative Negligence
A
Any degree of negligence on the injured party does not defeat the claim but creates % distribution
19
Q
Last Clear chance
A
Overrides contributory negligence if other party has last clear chance to prevent
20
Q
Disability Income
A
Typically 50-60%
When offered at work, buy individual policy before you buy your group policy
21
Q
HMO
A
Has a gate keeper
Need a referral to see a specialist
No coverage if they don’t take HMO
22
Q
PPO
A
Paid for service
No gate keeper
Can use someone other than PPO
23
Q
A
24
Q
Contributory Negligence
A
Any negligence on the part of the injured party defeats the claim
25
26
Participating policy’s vs non participating policy’s
Participating policy’s pay a dividend
Dividend is a return of premium
27
Capital Retention
Need per year / inflation % = total + need per yer
28
Open Perils
Insurer pays for damages except those specifically excluded
Generally the correct choice on exam
29
Floaters
Schedule personal property endorsement
Extra stuff golf clubs, jewelry, and collections
30
Replacement cost coverage vs. Actual Cash Value
Replacement cost base has no deduction for depreciation
ACV the lost property
31
Coinsurance for home
80%
32
Replacement Cost of the home
Home cost - land value
33
(100,000 , 300,000 , 50,000)
1. Per Person
2. Per occurrence
3. Property Damage
34
Business Owner’s Policy
(BOP)
For small to medium size business, normally excluded from normal policy
Normally general liability
Premium is deductible
35
Professional Liability
Mal practice and E&O is hug and hug
36
Most important section of auto policy to wealthy
Part a and c because they deal with liability
37
Medicare Part A
Hospital Insurance
Inpatient
Eligibl at 65
Funded by payroll deduction
Deductible for hospital stay
3 days in hospital then skilled nursing care for 20 days
Unlimited home health
Hospice Care or terminally ill
3 pints of blood
Medicare part a pays second if you have other health benefit like group health or veteran benefit
No hospital stay no Medicare
38
Medicare Part B
Outpatient
Financed by monthly premiums paid by you (IRMAA for high income earners)
Patient pays deductible first
Medicare pays 80% of deductible
Unlimited risk on 20% (Med-gap need)
Doctors services including house calls, office visits, and doctors services in hospital r other institution
Diagnostic test
Radiology/pathlogy
Realmente for mental illness
Transfusion of blood
Physical/occupational therapy
Drugs and biologicals that cannot be self administered
Excluded (Dentures, eye exams, eyeglasses or hearing aids, immunizations (excluding one flue shot), and prescription drugs)
39
Medicare D
Prescription drug coverage
Pay another premium
Must have a and b to get d
IRMAA charges more for high income earners
40
Health care premiums for employees’ and employee’s dependent’s’ coverage
Are tax deductible by employer and tax free to employee
41
Medicare Part B and workplace plans
Can delay taking part be age 65 till you stop working if you are covered by a work plan
42
HSA
Your money , including what employer gives you
Tax deductible
No phase out
Needs to be used with high deductible health plan
55 years old additional 1000 catch up
No use it or lose it
An not on tribute if part of Medicare A + B
43
Health Reimbursement account
HRA
Not your money
Contributions made by employer
Prove it by receipts
Use it or lose it
Employer keeps it
44
Dropping Group health plan after 65
Qualifying event so they can get medicare
Creates a 36 month overage for family
45
Distribution from HSA
Are tax free for qualified expenses
46
Elimination period
Period until disability is granted
47
Presumptive disability
Lose sight, hearing, speech, both hands, both feet, or one hand and one foot
Totally disabled
48
Disability taxation
Hug and slug
Or
Slug and hug
49
Cost of living adjustment
COLA
Inflation adjustment for disability
50
Social Insurance Substitute Benefit
SIS rider
Offset by social security
51
Long term care insurance
Eligibility: cannot perform 2 ADLS or Alzheimer’s, stroke, or other brain damage)
Eating, a thing, dressing, transferring from a bed to a chair, using the toilet, and maintains continence
52
Long- term care details
Paid under part a
Patient requires skilled nursing
Got to be in the hospital
20 days covered by medicare
20-100 co pay after that you pay it all
53
Medicaid
For po people (Countable assets less than 2k)
Look back rule
5 year look back
54
Section 1035 exchanges
Life to life. Ok. Lindsey Lohan
Life to annuity. Ok LA
Annuity to Annuity Ok AA
Annuity to Life. No Way AL
Cannot be done if the insured changes
55
Annual renewable term
Premiums increase annually
56
Level Term
Level Premiums
57
Re-entry
Re-qualify for low cost premium through abbreviate underwriting
58
Decreasing Term
Decreasing Death benefit / Level Premium
59
First-to-die/joint Life
Buy-sell or mortgage protection
60
Grace Period
Additional days to pay premium normally 31 days
61
Reinstatement clause
Gives owner of llames policy right to require the coverage with proof of insurability and payment plus interest of missed payment
62
Misstatement of age clause
Benefits under the policy will be adjusted to what premium would have been
63
Incontestable Clause
Insurers will not contest the pause after it has even in force for 2 years
64
Suicide Clause
If insured commits suicide during first two years premium will be returned
65
Riders
While life policy
- agrees to waive all premiums after policyholder has become totally and permanently disabled
Universal and variable universal
- waives charges for specific element leaving out cash value
- or company waives full premium
66
Viatical
Terminally ill (2 year life expectancy)
Sell to company for value or non-forfeiture fr cash that’s a lower value
Vatical company is taxed on the difference (premiums paid get removed from profit that gets taxed)
Cash value for insured is tax free
67
Life settlement
Sell policy, take profit from cash you put in and what you sell it for
Taxed at LTCG
L life settlement. L LTCG
68
Universal life
Interest rate
69
Whole life
Forced savings
70
Taxation of whole life policy
Gross Cash Value - Basis = Positive number (Gain Taxed as Ordinary Income)
Gross Cash Value
NET cash value + loans outstanding
Basis
Premiums paid - Dividends you got
71
Death Benefit taxation
Income tax free
Unless transfer or value (Sale)
Gift is not transfer for value
72
Owner of S corp
Tax free benefits
73
Transfer for value
Taxed as ordinary income
74
Benny in a Buy Sell agreement
When death occurs they get a step up in basis regardless if the owner of the policy was the partner or corp
75
Partner in buy sell
Gets a step up in basis when they own the policy
No step up if company owns the policy (Only do it if there is a lot of owners)
76
77
Endorsement method tax ability
If comapany and benny are named in policy to received bd tax free
Only the company, spouse will have a tax problem
78
Taxation of annuity withdrawals
LIFO
(Take out gains first then basis)
Gains ORdinary income
Before 59 1/2 10% penalty
Growth is tax deferred if you arre a natural winner (Real person, not a Corporation)
79
Buy sell agreements premiums
Never deductible
80
Disability buy sell
Buy out for 1m
100k basis
Taxable gain is 900k
No step up in basis
81
Group Life
DB income tax free Unless transfer
No contractors need to work there
Group term life
-premiums that pay for first 50k is not taxable to employee (DB still tax free)
-past 50k want to pay tax on it so DB is free
82
Section 162 bound
You get a bonus the company deducts it
You pay tax on W2
Benefit tax free
83
Group Disability
Less expensive than individual plans
Simpler and guarantee underwriting
Disability benefits for
First two years own occupation
After than any occupation
84
Social Security Disability benefit waiting period
5 months get the benefits in the 6th month
85
Does Short-term/ Long term disability offer conversion feature
No
86
FSA
Health FSA
- max salary deferral: 3,200
- pay for medical expenses and use it by end of the year
* can get an extension (Not mandatory)
A. March 15
B. forever extension $640
Dependent Care FSA
- pays for dependent care
- salary deferral: 5,000
- Both have to work
- under 13 years old
- basically after care and summer camp
(Not sleep away cam, not tuition, field trips, transportation)
- use it or lose it
87
VEBA
No deferred comp
88
Dental insurance
Like health insurance
Premiums are deductible and benefit tax free Unless transfer
89
Vision Insurance
Deductible, benefit taxable to emploee
90
Damages - personal injuries (punitive)
Taxable
91
Unemployment comp
Taxable above 2,400
92
Group life, group legal, group disability
All tax deductible by employer
