Insurance Flashcards
Taxable Amount on Life Policy Surrender
Cash value - total premiums paid = cash value less basis (taxable amount)
Surrender Value of Policy Calculation
Cash Value - Loans = payout
All Risk Coverage (home owners)
Open Perils
HO-3 ABD
HO-5 All
HO-6 C
Limit of coverage on boats and trailers under Coverage C
$1,000
PAP Liability Split Limits
Per Person/ Per Occurrence/ Property
Workers’ Comp Taxation
Tax free
Residual Benefits Rider
Proportional to income lost, payable for the same duration as total liability; an additional benefit on top of basic benefits
PQ
Partnership Qualified Long Term Care Insurance Policy
Insured can still apply for Medicaid with this kind of policy.
Only 1035 that is disallowed
Annuity to Life Insurance
Option B (Universal Life/VUL)
Death benefit grows with cash value. Beneficiary receives total
Option A (Universal/VUL)
Cash value grows independently of flat death benefit. Bene’s only receive death benefit
MEC
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.
APL Provision
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
Period Certain Annuity
Some amount of benefits (Ex: 10 years if 10 year certain) paid to beneficiaries at death for the period.
Refund rider on Annuity
Pays out the balance of the annuity (value)
Highest payout annuity
Pure/single life
Annuities taxed…
LIFO
**Before 1982 - FIFO
Being Tested
“Carve-out” Plan
Discriminatory Group Life Plan
Medical Expense FSA Cap
$2,550
Dependent Care Max Tax-Free Reimbursement FSA
$5,000
HSA Deductible
$5,000
FSA AKA…
Cafeteria Plan
Section 125
Morbidity Table
Shows statistical information regarding the probably incidence and duration of disability
To reduce premiums…
“Risk retention”
In the form of increasing deductibles (better answer) or lowering coverage. These are defined as risk retention.
Subrogation
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)
Capital Utilization (Life Insurance Need)
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.)
Human Life Value
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.
Capital Needs/Capital Retention/ Interest Only Approach (life insurance)
Uses interest only so original capital is left at the end of the planned period
Real return calculation w/o time (insurance)
Expected return - inflation
*only divide expected return by inflation when time is a factor mentioned in the question; time value of money
Participating Policy
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
Non-Participating Policy
Does not issue dividends to policyholders
Any excess investment returns or lower mortality-expenses are retained for shareholders
Mutual Insurance Company
Owned by policyholders, typically issues participating (dividend granting) policies.
Stock Insurance Company
Owned by shareholders. May issue participating (dividend granting) or non-participating (retains gains for shareholders) policies
Sections of Homeowners Policy
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
Homeowners Medical Coverage
$1,000 per person other than the insured
Exclusions on Coverage E (Homeowners)
(Personal Liability; Subrogation)
- business activity or professional services
- Use of motorized land vehicles (except recreational vehicles used on premises)
- Watercraft; except motorboat
Condo Owner’s Policy Coverage
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
“Dwelling” Policy Coverage
HO-1
Basic (WHARVES/FLT) coverage on all parts
“Home” HO-2 Policy Coverage
Broad (WHARVES/FLT + RAF) coverage on all parts
Broad Coverage
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
“Home” HO-3 Policy Coverage
Open - Dwelling (A)
Open 10% A - Other Structures (B)
Broad 50% A - Personal Property (C)
Open 30% A - Loss of Use (D)
“Home” HO-5 (HO 3-15) Policy Coverage
Open all parts
Most comprehensive coverage available
Older Home Policy Coverage
HO-8
Basic all parts. Same as HO-1
Renter’s Policy Coverage
Broad Personal Property (C), Broad 30% C for Loss of Use
ACV vs. Replacement Cost Coverage
ACV (“Actual Cash Value”) uses depreciation - original cost is non-essential information
Structures are covered under replacement cost and personal property uses ACV
Uninsured Motorist Coverage
Part C of PAP
This is liability coverage, not medical - though the money can be used for medical payments
Medigap Policy dependent on…
Enrollment in Medicare B
Cannot purchase medigap until enrolled in B
Keys for HMO
Capitation (pay flat fee to provider)
Gatekeeper - no out of network except emergency
Keys for PPO
Pay fee-for-service basis
Can go outside of network with reduced benefits
MSA Contributions Deductibility
Single: 65%
Family: 75%
No FICA
HSA Contributions Max
Single: $3,350
Family: $6,650
Catch-up $1,000 over 55 yrs
NO FICA
Viatical Company Payout at insured’s death
Proceeds are taxed at ordinary income rates
Benefits - (Basis + Additional Premiums Paid) = ordinary income taxable amount
Life Settlement (no terminal illness)
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
Violations and Exceptions - Life Insurance Transfer for Value Rules
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)
Medicare Specified Amount
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)
