Insurance Flashcards
What is Risk?
A condition where there is a possibility of loss (a situation where exposure to loss exists).
Starting a business
Buying real estate
What is a Hazard?
A condition that may create or increase the chance of loss arising from a peril.
Owning a home on an earthquake fault
Owning a home by a river
What are the Elements of Insurance?
Large number of homogeneous exposure units
Loss must be definite and measurable
Must be fortuitous or accidental
Must not be catastrophic (for the insurance company)
What are the Methods to Avoid/Reduce Loss?
Avoidance: Do not drive, Do not purchase a home but rent
Diversification: Duplication of assets or activities at different locations
Transference: INSURANCE
Retention: Voluntary - Recognizes that the risks exist and assume losses (deductible, coinsurance)
Risk Reduction: Sprinkler system, safety programs
What is Insurable Interest?
Property and Casualty: At inception and at time of claim
Life: At inception, but need not be at time of claim
What are the Parts of the Insurance Contract?
Declarations Page: Factual Statements that identify the specific person, property or activity being insured.
Definitions: Explanation of key policy terms
Insuring Agreements: Spells out the basic promise of the insurance company
Conditions: Spells out in detail the duties and rights of both parties.
Exclusions: Circumstances when the insurer will NOT pay.
What are Negligences?
Attractive Nuisances: Swimming pool, vacant lot
Negligence per se: Violation of a statute
Strict Liability
Product Liability
Absolute Liability: Workers Comp
Vicarious Liability: Respondeat superior (principal’s liability for their agents).
What are Defenses?
Assumption of Risk (skiiing, car racing)
Contributory (jay walking, being drunk)
Comparative (A is 20% negligent, B is 80%)
Last Clear Chance (Rear end someone when you could have avoided it by swerving, braking in time)
What are two methods of Calculating Life Insurance needs?
Capital Utilization Approach: Uses annuitization to provide needed income but leaves no money at the end of the planned period.
Capital Needs Approach: Uses interest only, so the original capital is still left at the end of the period (also called Capital Retention or Interest Only).
What are the most comprehensive Insurance Rating Service/Category services?
A.M. Best: A++ to F
Standard & Poor: AAA to CCC
What are Sections of a Homeowner’s Policy and
what do they cover?
Section I (Coverage: A B C D)
A - Dwelling and Attached Structures
B - Other structures, separate from dwelling (detached garage, fences, sheds)
C - Contents and Personal Property
D - Loss of Use Section II (Coverage: E F)
E - Liaiblity
F - Medical Payments
What property is excluded under Personal Property Coverage?
Animals, Birds, or Fish
Motorized Land Vehicles and Aircraft
Property of roomers, boarders or other tenants
Property contained in an apartment regularly rented or held of rental to others by the insured (unless specifically endorsed)
What are the Basic Form Perils Covered?
The policy lists perils covered:
Windstorm Hail Aircraft Riot Vandalism Vehicles Explosion Smoke Fire Lightning Theft Study Hint: Remember: WHARVVES/FLT
What are the Broad Form Perils Covered?
Rupture of a System Artificially Generated Electricity Falling Objects Freezing of Plumbing Study Hint: Remember Basic plus RAFF
Homeowner’s Policy Exclusions include:
Earthquake Flood Neglect Intentional Loss Ordinance/Law Power Failure War Nuclear Hazard Note: Sinkhole is a covered peril for the exam
What is the formula for Replacement Cost Coverage?
Replacement Cost x Coinsurance Percentage = Insurance Required
Insurance Carried ÷ Insurance Required x Loss - Deductible = Amount Paid by Insurance
What are the requirements for a vehicle to be eligible for:
Insurance Services Office (ISO)
Personal Auto Policy (PAP)
Be owned by an individual or by a husband and wife living in the same household
Be private passenger auto
Not be used as public or livery conveyance
Not be rented to others
What are the Parts of an Auto Insurance Policy?
What do they cover?
Part A - Liability to third parties
Part B - Medical payments
Part C - Uninsured/Underinsured motorists
Part D - Damage to the covered auto
What is Peril?
The cause of a loss, the event insured against:
Fire
Windstorm
Theft
etc.
What is classified as a “Covered Auto” under an
Auto Insurance policy?
any vehicle shown on the declarations page
any of the following which you acquire during thee policy period
1 private passenger auto
2pick up
3panel truck or van
NO coverage for any of these used in a business (need a commercial policy or that)
any trailer on dec page
any auto or trailer you do not own while used as a temp substitute for any vehicle described herein which is out of normal use because of breakdown, repair servicing loss or destruction
Who are the Persons Insured under medical payments
coverage of the PAP?
the named insured and any family members who suffer bodily injury caused by accident while occupying covered vehicle
the named insured and family who if while a pedestrian , are struck by any motor vehicle designed for use on public road or by trailer
other persons while an occupant of the insured auto
What is Uninsured Motorist Coverage (UM)?
this agreement promises to pay the amount an injured insured could have collected from the uninsured driver if such driver had carried auto liability insurance. the term covered person as used under the uninsured motor coverage fo the PAP includes
the named insured and family
any other person occupying the auto
any person for damages that person is entitled to recover because of injury to a person described above
UM IS LIABILITY NOT MEDICAL PAYMENT
What are the perils covered under the “Other Than Collision” Provision of an Auto Policy?
glass breakage loss caused by falling object fire theft explosion earthquake windstorm hail water flood riot/civil commotion contact with bird/animal
What are the benefits of an Umbrella Liability Insurance?
nearly always a correct answer
provides liabilty coverageBI/PD for catastrophic claims
requires policy owner to carry underlying coverage for specific amount
professional act are EXCLUDED
What are the two types Professional Liaiblity Insurance and who/what does it cover?
malpractice-bodily injury
errors an omission-monetary damages
What does Worker’s Compensation cover?
unlimited medical expenses disability income-TAX FREE death benfit rehab-medical and vocational absolute liability
Medicare does NOT cover…
routine foot cre, glass, hearing aid, dental
emergency care out of USA (exception canada, mexice, carribean)
Explain the limitations of Medicare’s Long Term Care coverage.
benefits LIMITED-pays all of the first 20 DAYS of SKILLED care and everything over a specified amount per day for the next 80DAYS of CARE
THE LIMITED BENFITS IS SUBJECT TO SUBSTAINTIAL RESTRICTION–PAYS ONLY SKILLED CARE
1. admission to a nursing home must follow within 20days of the hospital stay of 3 days or more
2. the patient condition must be expected t improve
Compare HMO vs PPO
HMO provider paid monthly fee regardless of services render (Capitation) out of network NOT COVERED PPO provider paid for services rendered out of network covered, usually 70%
What are the COBRA coverage requirements and
Qualifying Events?
Must have 20 full time (part time) employees
the option to buy continuation
Coverage must be offered to–
1. terminated
18 months-employee and dependents–voluntary or involuntary or change from FT to PT
2.spouses and other dependents–36mos
employee death, divorce, legal separation, eligibility for Medicare Children of employee
3. loss of dependent status (marriage)
reaching dependency age limit spec by plan
What is a Health Savings Account (HSA) and
what are its benefits?
used with High deduct health plan(HDHP)
distributions tax free for health care
contributions not spent are carried forward and portable
unused assets become property of named bene on death
distributions for non-med are ordinary income PLUS 20% penalty under 65
What are the Definitions of Disability?
Own OCcupation-BEST defination Modified Any OCC Split Definition-own then modified ANY Occupation--social security definition loss of income
What are the Policy Continuation Provisions for Disability Income?
NONCAN_continuous TERM pl=olicy guaranteeing the insured’s right to maintain the POLICY AND THE PREMIUM
Guaranteed Renewable-Continuous right to maintain the policy, BUT the insurer can RAISE the Premium by class insured
Taxation of Premiums and Benefits for Disability Policies
taxation of premium and benfits
individual owns and pays prmium–not deductible BUT benefits are TAX FREE
employee owns contract and employer pays premium under BONUS arrangement (section 162)–premiums Are deductible to employer and Benefits are TAX FREE to employee
employee owns contract and employer pays premium with Salary continuation plan (group Plan)
premiums are deductible to employer
BUT Employee TAXED on benefits
Permanent Life Insurance (Low Risk Tolerance)
insurance company controls the investment return
assets part of general fund
whole life
universal life
Permanent Life Insurance (High Risk Tolerance)
client controls investment return
assets part of separte account
variable life
varialbe universal life
What are the Dividend Options on Life Insurance?
cash reduced premium accumulate with interest paid up additions one year term/5th dividend
What are the Nonforfeiture Options of Life Insurance?
cash
extended term
paid up
reduced amount
What are the Life Insurance Settlement Options?
Cash pure life/single life refund period certain specified income/period interest only joint and survivor
What is a Modified Endowment Contract (MEC)?
entered into after June 21 1988
fails to meet “7 pay Test”–ALL SIngle Premium policies
distributions/withdrawals are TAXED LIFO-interest first
Distributions under 59.5 subject to 10% penalty (unless disabled)
Death Benefit is still TAX FREE
What are the MEC Grandfather Life Insurance rules?
If death benefit increases by $150 k or less and the insured has guaranteed insurabliity (no proof) the policy WILL NOT lose its grandfather status (non-MEC)
If policy increase by ANY amount and insured must PROVE insurablity–policy May lose its grandfathered NON-MEC status
When are the proceeds in a Life Insurance policy taxable
due to Transfer for Value?
If an interest in a life insurance policy is transferred for valuable consideration (not a gift), the proceeds in excess of the consideration paid, combined with any premiums paid by owner, are taxable as ORDINARY INCOME –like a viatical
Exceptions
1 sale or transfer to insured
2 sale or transfer to a partner or partnership in which the insured is a partner
3 a corporation in which the insured is a shareholder or officer
4 divorce
What are the 1035 Tax Free Exchange Rules?
life-life=OK
life-annuity=ok
annuity -annuity=ok
NO annutiy-Life
Buy Sell Stock Redemption
vs
Cross Purchase
Stock redemption=
NO step up in CB
Cross purchase=
Sep up in Basis
Split Dollar Insurance Endorsement Method
vs
Collateral Assignment Method
Endorsement method
employer is owner
employee is not a shareowner
Collateral Assignment method
employee is owner
employee is shareholder
employee assigns the policy
