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CFP Memorize > Insurance > Flashcards

Insurance Flashcards

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1
Q

Taxable Amount on Life Policy Surrender

A

Cash value - total premiums paid = cash value less basis (taxable amount)

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2
Q

Surrender Value of Policy Calculation

A

Cash Value - Loans = payout

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3
Q

All Risk Coverage (home owners)

A

Open Perils

HO-3 ABD
HO-5 All
HO-6 C

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4
Q

Limit of coverage on boats and trailers under Coverage C

A

$1,000

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5
Q

PAP Liability Split Limits

A

Per Person/ Per Occurrence/ Property

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6
Q

Workers’ Comp Taxation

A

Tax free

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7
Q

Residual Benefits Rider

A

Proportional to income lost, payable for the same duration as total liability; an additional benefit on top of basic benefits

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8
Q

PQ

A

Partnership Qualified Long Term Care Insurance Policy

Insured can still apply for Medicaid with this kind of policy.

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9
Q

Only 1035 that is disallowed

A

Annuity to Life Insurance

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10
Q

Option B (Universal Life/VUL)

A

Death benefit grows with cash value. Beneficiary receives total

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11
Q

Option A (Universal/VUL)

A

Cash value grows independently of flat death benefit. Bene’s only receive death benefit

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12
Q

MEC

A

Once a MEC… Always a MEC

Fails seven-pay-test

LIFO distributions, subject to ordinary income tax and 10% penalty if under 59 1/2

Death benefits are tax-free.

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13
Q

APL Provision

A

Automatic Premium Loan

(Only Whole Life)

Forget to pay the premium, insurer automatically deducts the premium amount from the cash value as a loan. Keeps the policy in-force

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14
Q

Period Certain Annuity

A

Some amount of benefits (Ex: 10 years if 10 year certain) paid to beneficiaries at death for the period.

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15
Q

Refund rider on Annuity

A

Pays out the balance of the annuity (value)

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16
Q

Highest payout annuity

A

Pure/single life

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17
Q

Annuities taxed…

A

LIFO

**Before 1982 - FIFO
Being Tested

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18
Q

“Carve-out” Plan

A

Discriminatory Group Life Plan

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19
Q

Medical Expense FSA Cap

A

$2,550

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20
Q

Dependent Care Max Tax-Free Reimbursement FSA

A

$5,000

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21
Q

HSA Deductible

A

$5,000

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22
Q

FSA AKA…

A

Cafeteria Plan

Section 125

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23
Q

Morbidity Table

A

Shows statistical information regarding the probably incidence and duration of disability

24
Q

To reduce premiums…

A

“Risk retention”

In the form of increasing deductibles (better answer) or lowering coverage. These are defined as risk retention.

25
Q

Subrogation

A

The insurer pays-out your claim and pursues and civil action on your behalf. You have been “made-whole” and no longer have right to sue or settle a suit.

The exception is under the “collateral source” rule - additional damages that are not adequately covered by your insurer. You can still sue. (Ex: PTSD or mental impairments present after a catastrophic event)

26
Q

Capital Utilization (Life Insurance Need)

A

Annuitization; generates needed income; leaves NO MONEY at the end of the planned period

Takes into account all current resources held (other insurance, assets, etc.)

27
Q

Human Life Value

A

Determined amount needed to replace wage-earner’s income. PV of income at the earner’s death.

Does not take into account other resources/assets/policies currently held.

28
Q

Capital Needs/Capital Retention/ Interest Only Approach (life insurance)

A

Uses interest only so original capital is left at the end of the planned period

29
Q

Real return calculation w/o time (insurance)

A

Expected return - inflation

*only divide expected return by inflation when time is a factor mentioned in the question; time value of money

30
Q

Participating Policy

A

May be issued by mutual (owned by policyholders) or stock (owned by stockholders) insurance Co’s

  • Pays dividends to the policyholder; excess investment returns or fewer claims in a given year (lower mortality/expenses)
  • “willful overcharge” - extra premium
  • Any return of extra premium is generally tax-free
31
Q

Non-Participating Policy

A

Does not issue dividends to policyholders

Any excess investment returns or lower mortality-expenses are retained for shareholders

32
Q

Mutual Insurance Company

A

Owned by policyholders, typically issues participating (dividend granting) policies.

33
Q

Stock Insurance Company

A

Owned by shareholders. May issue participating (dividend granting) or non-participating (retains gains for shareholders) policies

34
Q

Sections of Homeowners Policy

A

On the Declarations Page

Section I:
A. Dwelling (and structures attached)
B. Other structures
C. Personal Property
D. Loss of use (additional living expenses)

Section II:
E. Personal Liability
F. Medical

35
Q

Homeowners Medical Coverage

A

$1,000 per person other than the insured

36
Q

Exclusions on Coverage E (Homeowners)

A

(Personal Liability; Subrogation)

  • business activity or professional services
  • Use of motorized land vehicles (except recreational vehicles used on premises)
  • Watercraft; except motorboat
37
Q

Condo Owner’s Policy Coverage

A

HO-6

Open personal property (C), Broad 50% Loss of use (D)

A and B are partially covered for names perils on installed items - wall-to-wall carpeting and cabinetry, fixtures

$5,000 base loss assessment coverage, (can purchase more) for protection against assessments made by the condo association on losses to collectively owned property

38
Q

“Dwelling” Policy Coverage

A

HO-1

Basic (WHARVES/FLT) coverage on all parts

39
Q

“Home” HO-2 Policy Coverage

A

Broad (WHARVES/FLT + RAF) coverage on all parts

40
Q

Broad Coverage

A

Basic plus RAF

Rupture of a system, Artificially generated electricity, Falling Objects, Freezing of plumbing

**Basically failure of any man made system that could cause damage to property

41
Q

“Home” HO-3 Policy Coverage

A

Open - Dwelling (A)

Open 10% A - Other Structures (B)

Broad 50% A - Personal Property (C)

Open 30% A - Loss of Use (D)

42
Q

“Home” HO-5 (HO 3-15) Policy Coverage

A

Open all parts

Most comprehensive coverage available

43
Q

Older Home Policy Coverage

A

HO-8

Basic all parts. Same as HO-1

44
Q

Renter’s Policy Coverage

A

Broad Personal Property (C), Broad 30% C for Loss of Use

45
Q

ACV vs. Replacement Cost Coverage

A

ACV (“Actual Cash Value”) uses depreciation - original cost is non-essential information

Structures are covered under replacement cost and personal property uses ACV

46
Q

Uninsured Motorist Coverage

A

Part C of PAP

This is liability coverage, not medical - though the money can be used for medical payments

47
Q

Medigap Policy dependent on…

A

Enrollment in Medicare B

Cannot purchase medigap until enrolled in B

48
Q

Keys for HMO

A

Capitation (pay flat fee to provider)

Gatekeeper - no out of network except emergency

49
Q

Keys for PPO

A

Pay fee-for-service basis

Can go outside of network with reduced benefits

50
Q

MSA Contributions Deductibility

A

Single: 65%
Family: 75%

No FICA

51
Q

HSA Contributions Max

A

Single: $3,350
Family: $6,650

Catch-up $1,000 over 55 yrs

NO FICA

52
Q

Viatical Company Payout at insured’s death

A

Proceeds are taxed at ordinary income rates

Benefits - (Basis + Additional Premiums Paid) = ordinary income taxable amount

53
Q

Life Settlement (no terminal illness)

A

Proceeds to insured are split taxed as…

Ordinary income: (Cash Value - premiums paid)

LTCG: Recognized Income* - Ordinary income (from above)

  • Proceeds - Adjusted premiums** = Recognized Income

** Premiums Paid - Cost of Insurance = Adjusted Premiums

54
Q

Violations and Exceptions - Life Insurance Transfer for Value Rules

A

With the exception of the below, any transfer of life insurance for a valuable consideration eliminates the federally tax-free status for life insurance benefits.

Exceptions:

  • transfer to the insured
  • transfer to partner of insured (partnerships only)
  • transfer to corporation of the insured (shareholder or officer)
  • *Common violation:
  • Using the life insurance for a stock purchase to fund a cross purchase plan
  • key person insurance transferred to a spouse or child of the insured. (MUST go to the insured, not a dependent or bene)
55
Q

Medicare Specified Amount

A

Similar to a deductible, Medicare will pay expenses above this amount.

EX: Cost of nursing home is $257.50 per day, Medicare specified amount is $157.50. First 20 days, Medicare pays full $257.50. Next 80 days, Medicare pays $100 per day ($257.50-$157.50=$100)

CFP Memorize (6 decks)

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