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Insurance Flashcards

1
Q

Pure Risk

A
  • Chance of only loss or no loss
  • e.g. death, auto accident, house fire
  • insurable risks
  • Other wording: uncertain possibility of loss and no chance of gain
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2
Q

Speculative Risk

A
  • Chance of profit, loss, or no loss
  • Generally undertaken by entrepreneurs
  • Generally voluntary risk and not insurable
  • Uncertain possibility of loss with a chance of gain
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3
Q

Subjective Risk

A
  • Differs based upon an individual’s perception of risk.
  • e.g. Tom recently moved to Dunwoody, Georgia. His neighbours told him that the police department has a reputation for writing speeding tickets. As a result, Tom buys a radar detector because he perceives there to be a significant risk of getting a speeding ticket.
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4
Q

Objective Risk

A
  • does not depend on an individual’s perception, but is measurable and quantifiable
  • measures the variation of an actual loss from expected loss
  • e.g. Statistics published for the number of speeding tickets written per drivers living in a city would confirm or disprove the subjective risk perceived by Tom in the previous example.
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5
Q

Probability of Loss

A
  • the “chance” of a loss occuring
  • the measure of the long-run frequency with which an event occurs
  • a useful measure for the insurer because it quantifies the expected cost of claims
  • a higher probability of a loss may result in a decline o coverage
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6
Q

Severity

A
  • the actual dollar amount of the loss

* more important than the probability of a loss

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7
Q

Law of Large Numbers

A
  • specifies that when more units are exposed to a similar loss, the predictability of such a loss to the entire pool increases
  • the more exposures, the more likely that the results will equal true results and thus will be predictive of future results
  • helps to reduce objective risk
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8
Q

Perils

A
  • the actual cause of a loss

* e.g. fire, wind, tornado, earthquake, burglary, and collision

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9
Q

Hazard

A

a condition that increases the likelihood of a loss occurring. Three types: Moral, Morale, and Physical.

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10
Q

Moral Hazard

A
  • a character flaw
  • would lead to filing a false claim
    e. g. A famous running back for Ohio State claimed his car was broken into and $10,000 worth of CDs were stolen. There certainly wasn’t $10,000 worth of CDs in his car and thus this is an example of a moral hazard.
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11
Q

Morale Hazard

A
  • the indifference created because a person is insured.
  • e.g. Beth goes to the convenience store to get milk for her baby Hudson. Beth leaves the keys in her car and the car running while she goes into the store, not concerned that her car may get stolen because she has car insurance.
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12
Q

Physical Hazard

A
  • a tangible condition that increases the probability of a peril occuring
  • e.g. icy or wet roads, poor lighting, or defective equipment
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13
Q

Adverse Selection

A
  • the tendency of persons with higher-than-average risk to purchase or renew insurance policies
  • Premiums are dependent upon a balance between favourable and unfavourable risks in the pool
  • managed through underwriting, denying insurance on the front end, and raising premiums on the back end
  • An underwriter is responsible for managing adverse selection
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14
Q

What are the requisites for an insurable risk?

A
  1. A large number of similar exposure units.
  2. Losses must be accidental from insured’s view.
  3. Cannot insure moral hazards because premiums would skyrocket.
  4. Losses must be measurable and determinable so that the insurer can accurately forecast actual losses.
  5. e.g. It’s easy to determine the value of a house or auto, but it’s difficult to determine the amount of cash in a wallet; therefore, coverage is limited.
  6. Losses must not pose a catastrophic risk for the insurer.
  7. An insurer cannot provide coverage that would cause it to become financially insolvent.
  8. The premiums must be affordable.
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15
Q

Elements of a Valid Contract

A
  1. One party must make an offer and the other party must accept that offer. (The signing of an insurance application and paying the first premium may be considered offer and acceptance.)
  2. There must be legal competency of all parties involved in a contract.
  3. Both parties must be 18 or older; otherwise, the contract is voidable by the minor.
  4. There must be legal consideration. Consideration is whatever is being exchanged. It can be money, services, or property.
  5. A promise to pay (insurer) and actual payment of a premium (insured).
  6. The contract must pertain to a lawful purpose. (Insurance contracts that promote actions that are illegal are invalid.)
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16
Q

What are the three Legal Principles of Insurance Contracts?

A
  1. The Principle of Indemnity
  2. Subrogation Clause
  3. The Principle of Insurable Interest
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17
Q

The Principle of Indemnity

A
  • An insured is only entitled to compensation to the extent of the insured’s financial loss.
  • An insured cannot make a profit from an insurance contract.
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18
Q

Subrogation Clause

A
  • The insured cannot receive compensation from both the insurer and a third party for the same claim.
  • If the insured collects compensation from their insurance company, they lose the right to collect compensation from the third party.
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19
Q

The Principle of Insurable Interest

A
  • An insured must have an emotional or financial hardship resulting from damage, loss, or destruction.
  • Property and Liability Insurance - the insured must have insurable interest at time of policy inception and at time of loss
  • Life Insurance - the insured need only have insurable interest at the time of policy inception
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20
Q

Warranty

A
  • a promise made by the insured to the insurer

* A breach of warranty is grounds for avoidance by the insurance company

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21
Q

Representation

A
  • statements made by the insured to the insurer during the application process
  • There must be a material “misrepresentation” to void an insurance contract
  • Misrepresenting age on a life insurance application is not material misrepresentation
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22
Q

Concealment

A

When the insured is silent about a fact that is material to the risk

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23
Q

Adhesion

A
  • An insurance policy is basically, “take it or leave it.” There are no negotiations over terms and conditions.
  • As a result, any ambiguities in an insurance contract are found in favour of the insured.
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24
Q

Aleatory

A

The money exchanged may be unequal. In other words, there’s a small premium, but the insured may receive a large benefit.

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25
Q

Unilateral

A
  • Only one promise made by the insurer = to pay in the event of a loss
  • The insured is not obligated to pay the premiums. If the premiums are not paid, then there’s no promise by the insurer.
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26
Q

Express Authority

A
  • Given through an agency or written agreement

* The insurer is responsible for acts of an agent based on express authority

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27
Q

Implied Authority

A
  • The authority that the public perceives
  • The actual delivering of an insurance contract and accepting a premium is an example of implied authority.
  • The insurer is still responsible even if a client is misled.
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28
Q

Apparent Authority

A
  • When the insured believes that the agent has authority to act on behalf of the insurer when in fact, no authority actually exists.
  • Apparent authority could be inferred based on business cards or a sign on the wall, but the agency agreement actually expired.
  • If an agent represents that the insured can purchase a policy from an insurance company that has not renewed that agent’s agreement, they may still be held responsible.
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29
Q

Insurance Rating Agencies

A

A.M. Best’s

  • Highest Rating: A++ to A/A-
  • Lowest Rating: C/C- to D

Moody’s

  • Highest Rating: Aaa to Aa1/Aa2
  • Lowest Rating: B1/B2/B3 to Caa

Standard and Poor’s

  • Highest Rating: AAA to BBB
  • Lowest Rating: BB and lower CC
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30
Q

National Association of Insurance Commissioners (NAIC)

A
  • Provides a watch list of insurance companies based upon financial ratio analysis.
  • Ratios measure the financial health of insurance companies.
  • NAIC has no regulatory power over the insurance industry, but is involved in accrediting state insurance regulatory offices.
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31
Q

What are the Six Steps of Risk Management?

A
  1. Determine the objectives of the risk management program.
  2. Identify the risks to which the client is exposed.
  3. Evaluate the identified risks as to probability of occurrence and potential loss.
  4. Determine alternatives for managing risks, and select the most appropriate alternative for each.
  5. Implement the program.
  6. Evaluate, monitor, and review (control).

D-I-E-D-I-E = Don’t Insure Everything (Squared)

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32
Q

Term Life Insurance

A
  • Pure insurance protection which pays a predetermined sum if the insured dies during a specified period of time.
  • The protection ceases at the end of the term unless renewed.
  • The premium pattern may be level or increasing on an annual or set period basis.
  • The face amount may be level or decreasing.
  • There is no cash value, savings component, or investment component.
  • It is very inexpensive at young ages.
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33
Q

Whole (Permanent) Life Insurance: Characteristics

A
  • Provide lifetime protection if premiums are paid as agreed.
  • All whole life policies pre-fund future higher mortality costs using present value analysis.
  • Premium patterns vary widely from single premium to increasing premiums.
  • Whole life policies have a savings or investment component with earnings accruing on the residual of the premium less the cost for the year plus any previous savings balance.
  • Cash values may be used for loans or may be received if the policy is surrendered.
  • Cash values usually have a minimum guaranteed rate of interest.
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34
Q

Whole Life Insurance: Advantages

A
  • Provide tax-deferred growth of cash value

* Provides permanent protection until age 100-120

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35
Q

Whole Life Insurance: Disadvantages

A
  • The premiums are expensive and there is no flexibility with the premium payments.
  • The cash value grows gradually.
  • The insured may not be able to purchase as much protection.
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36
Q

Ordinary Life

A
  • The insured pays premiums until age 100-120 or death.
  • The cash value increases to face value at age 100-120.
  • The death benefit is level throughout the term of the policy.
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37
Q

Limited Pay Life

A

Premiums are higher than ordinary life because the insured only pays premiums until a certain age.

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38
Q

Variable Life

A
  • The cash value is invested in stock, bond, and money market mutual funds. An opportunity for higher returns on cash value exists with variable life.
  • The death benefit and cash value fluctuate based on investment performance.
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39
Q

What are the five dividend options?

A
  1. Cash - clients receive the money and can use it or invest it as they wish.
  2. Accumulate at Interest - the company reinvests the dividends and they are tax-free up to the client’s basis in the policy. Interest paid on the dividends is taxable.
  3. Reduce Premiums - decreases the out of pocket expense for premiums.
  4. Paid-up Additions - purchases additional insurance each year for insured regardless of health or occupation.
  5. One-year Term - adds term insurance each year to the policy face amount equal to cash value of the policy. Also known as the 5th dividend option on the CFP(r) Exam!
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40
Q

Life Insurance Nonforfeiture Options

A
  • Cash Surrender Value: Insured receives the accumulated cash value when terminating the life insurance policy. The cash surrender value is the cash value less surrender charges.
  • Reduced Paid-up Insurance: Insured receives the cash value in the form of a paid-up policy with a smaller face amount.
  • Extended Term Insurance: The insured receives the cash value in the form of a paid-up term policy for a specified duration, with the same face amount as the original policy.
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41
Q

Universal Life Insurance

A
  • The insured may adjust: premiums paid, face value of the policy, and cash value.
  • The insured does not direct the investment portion of the cash value.
  • Cash value can be used to actually pay the policy premiums.
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42
Q

Universal Life - A

A
  • A flexible premium, adjustable death benefit, unbundled life insurance contract.
  • If the cash value gets high enough, the death benefit will increase.
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43
Q

Universal Life - B

A
  • Death benefits vary directly with the cash values

* B is more expensive than A because the death benefit is equal to a specified amount of insurance plus the cash value.

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44
Q

Variable Universal Life

A
  • A product with investment options such as stock, bond, and money market mutual funds.
  • There is no minimum guaranteed rate of return or interest.
  • The cash value is invested in a separate account, not the insurer’s general account.
  • The cash value is not guaranteed but in the event of an insurance company failure, the separate account will not be treated as an asset of the insurance company.
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45
Q

Absolute Assignment

A

The owner transfers all policy ownership rights

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46
Q

Collateral Assignment

A
  • used for collateral on debt, which only assigns limited ownership rights
  • assignment is automatically terminated when the debt is satisfied
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47
Q

Taxation of Life Insurance

A
  • Death benefits are generally excludable from taxable income, exception is the “unholy trinity” where the insured, beneficiary, and owner all different people. If the insured dies under an “unholy trinity” policy, then the owner of the policy has made a taxable gift to the beneficiary.
  • Dividends earned on cash value are not taxable until withdrawn.
  • Cash value is not taxable if received at death.
  • Loans against life insurance are tax-free. However, if a contract is deemed a MEC, any loans or withdrawals will be treated using the LIFO method.
  • Exchanges for one life insurance policy to another or an annuity do not create taxable events.
  • Exchanging an annuity for life insurance does create a taxable event.
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48
Q

MECs

A
  • subject to 10% penalty if withdrawn before age 59 1/2
  • A policy is a MEC if it fails the 7 Pay Test, i.e. if the cumulative premiums paid exceed the premiums due for the time period being considered.
  • Withdrawals are taxed on a LIFO basis. (non-MEC withdrawals are FIFO.)
  • MEC status only affects withdrawals and loans, not taxation of proceeds at death. (If the client doesn’t intend to take a withdrawal or a loan, then creating a MEC is of no consequence.)
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49
Q

Transfer of Life Insurance Policy for Value: General Rule and Exceptions

A

Taxable to transferee to the extent proceeds exceed basis, unless exception:

  1. transferred to the insured
  2. transferred to a business partner of the insured
  3. transferred to a partnership of the insured
  4. transferred to a corporation in which insured is a shareholder or officer
  5. transfer that results in carryover basis from transferor to transferee
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50
Q

Taxation of Life Insurance Premiums

A
  • premiums paid by the insured are not tax deductible by the insured
  • group life insurance premiums paid by an employer are deductible by the employer
  • premiums paid by the employer are taxable income to the employee, to the extent that they exceed $50,000 of coverage. An employee must impute taxable income for any benefits in excess of $50,000, using a function of age and amount of benefits per $1,000 in excess coverage.
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51
Q

Define “Chronically Ill”

A

a person who is not terminally ill but has been certified by a licensed health care provider as being unable to perform, without assistance, at least two activities of daily living for at least 90 days, or a person with a similar level of disability.

52
Q

What are the Activities of Daily Living

A

(1) eating
(2) toileting
(3) transferring
(4) bathing
(5) dressing
(6) continence

53
Q

Taxation of Annuities

A
  • For annuities after 1982 and premature withdrawals, LIFO

* Any annuity prior to 1982, premature withdrawals are FIFO

54
Q

Tax treatment for exchanging life insurance and annuities

A 
Taxable = Annuity -> Life Insurance
Nontaxable = Life insurance  Life insurance; Annuity  Annuity; Life Insurance -> Annuity
55
Q

Steps to Solve Stop Loss Limit

A
  • Insured always pays the deductible first.
  • Insured then pays coinsurance percentage of stop loss amount
  • After paying coinsurance percentage of the maximum stop loss amount, insurer pays 100%
  • Insured pays the deductible plus the stop loss limit
56
Q

Steps to Solve Out-of-Pocket Expenses

A
  • Insured always pays the deductible first.
  • Insured pays coinsurance percentage times the medical expenses until the maximum is reached.
  • After the deductible plus coinsurance amount exceeding the out of pocket maximum, then insurer pays 100%.
  • The out of pocket maximum includes the deductible.
57
Q

Non-cancelable policies

A
  • These policies are continuous and guarantee an insured the right to renew until a specific age or stated number of years.
  • The insurer cannot raise premiums and cannot cancel the policy.
58
Q

Guaranteed Renewable Policies

A
  • The right to renew is guaranteed until a specific age or stated number of years.
  • The insurance company cannot cancel the policy but they can raise the premiums, as long as the premiums are raised for an entire group or class of policyholders.
59
Q

Medicare Part A

A
  • paid for by a portion of the Social Security tax
  • Services covered include: basic hospital, skilled nursing, home health care, and hospice.
  • A benefit period begins on the first day a patient receives services and ends after 60 consecutive days of no further hospital stays, skilled nursing care or rehabilitation services. There is no limit to the number of benefit periods per individual.
  • $1,360 (2019) deductible per benefit period
  • $341 (2019) coinsurance per day for days 61-90 per benefit period
  • $682 (2019) coinsurance per day for days 91-150 (lifetime reserve days)
  • $170.50 (2019) coinsurance per day for skilled nursing facility, days 21-100 per benefit period
  • 20% medical equipment coinsurance
  • Custodial services not covered: a nursing care facility that provides assistance with activities of daily living.
60
Q

Medicare Part B

A
  • Persons with Part A coverage can elect Part B coverage as well.
  • Supplementary medical insurance
  • Premiums paid by the insured: $135.50 (2019) per month or more depending on income.
  • Services include: doctor’s services, ambulance transportation, diagnostic tests, outpatient therapy, home health care, clinical research, durable medical equipment (wheelchairs, hospital beds, walkers, oxygen), mental health (inpatient, outpatient, partial hospitalization)
  • $185 (2019) per year deductible with a coinsurance of 20%
  • Does not cover: dental care, cosmetic surgery, hearing aids, and eye exams. (most likely to be asked)
61
Q

Consolidated Omnibus Budget Reconciliation Act (COBRA)

A
  • an extension of group health insurance with the same coverage
  • An employer pay charge 2% for administrative expenses. (Total expense to the employee is 102% of actual insurance cost.)
  • Applies to loss of coverage for the covered employee, employee’s spouse, and/or dependent child.
62
Q

Qualifying events in which an employer must offer COBRA coverage for a specified period of time

A
  • 18 months: reduction in hours or normal termination
  • 36 months: death, divorce, Medicare eligibility, loss of dependency status for children of employee
  • Up to 29 months if employee meets Social Security definition of disabled
  • If an employer terminates a plan, but is still in business, they must offer COBRA to the formerly covered employees. If the business ceases for any reason, then COBRA does not apply.
63
Q

Definitions of Disability

A
  1. Any Occupation
  2. Modified Any Occupation
  3. Own Occupation
  4. Split Definition
64
Q

Any Occupation Disability

A
  • Considered disabled if insured cannot perform the duties of “Any Occupation”
  • This definition provides for the least expensive premium
65
Q

Modified Any Occupation Disability

A
  • Considered disabled if unable to perform duties of gainful occupation they’re reasonably fitted by education, experience, training, and prior economic status.
66
Q

Own Occupation Disability

A
  • Considered disabled if insured cannot perform the duties of his “Own Occupation”
  • More expensive, ideal for specialized, high paying fields
67
Q

Split Definition Disability

A

Begins with own occupation and moves into modified any occupation after a year or two under the own occupation definition

68
Q

Taxation of Disability Insurance Benefits

A
  • if employee pays the premium: premiums are not deductible but benefits are tax-free
  • if employer pays the premium: premiums are deductible to the employer and benefits to employee are taxed
  • if employee pays the premium with pre-tax dollars (cafeteria plan): benefits to employee are taxed
  • if employer pays the premium and they are the beneficiary: premiums are not deductible
69
Q

Residual Benefits Clause

A

If insured goes back to work at less pay, then the policy will pay the difference between current income and income prior to disability.

70
Q

Homeowners (HO) Insurance Section I Coverages

A

Coverage A: Dwelling
Coverage B: Other structures
Coverage C: Personal property
Coverage D: Loss of use

71
Q

Homeowners (HO) Insurance Section II Coverages

A

Coverage E: Personal Liability

Coverage F: Medical Payments to Others

72
Q

Basic Named Perils

A

(1) Fire, (2) Vehicles, (3) Lightning, (4) Smoke, (5) Windstorm, (6) Vandalism, (7) Hail, (8) Explosion, (9) Riot, (10) Theft, (11) Aircraft, (12) Volcano
e. g. VVV WEATHR FS

73
Q

Broad Named Perils

A

Basic Named Perils 1-12 plus:

  1. Falling objects
  2. Weight of ice, snow, sleet
  3. Accidental overflow of water
  4. Sudden bursting of appliances
  5. Freezing of system or appliance
  6. Damage from electrical current

e.g. SWADe FF

74
Q

General Exclusions for Homeowner’s Policies

A
  1. Movement of ground: includes an earthquake or landslide
  2. Ordinance or law: loss resulting from regulations regarding construction or demolition
  3. Damage from water: floods, water from underground and sewer backup
  4. War or nuclear hazard: including a nuclear power plant
  5. Power failure: such as a power plant failure that causes a loss
  6. Intentional act: burning down your own house
  7. Neglect: must take reasonable means to save property and mitigate loss
75
Q

Homeowners Coverage A: Dwelling

A
  • Covers repair or replacement of the house, attached structures, and building materials on premises.
  • The insured must purchase an amount equal to replacement cost (cost to rebuild) of the building.
  • Insured must carry at least 80% of replacement cost of the building (coinsurance).
    Formula: (Insurance Purchased / Coinsurance) x (Loss or Replacement Cost)
76
Q

Actual Cash Value

A

Represents the depreciated value of the property

77
Q

Replacement Cost

A

Amount necessary to purchase, repair or replace with similar quality at current prices.

78
Q

Homeowners Coverage B: Other Structures

A
  • Includes detached garages, storage buildings, etc.
  • Limit is usually 10% of the amount of Coverage A
  • Other structures will not be covered if used for business purposes
79
Q

Homeowners Coverage C: Personal Property

A
  • Includes furniture, electronics, clothing, paintings, etc.
  • Limit is usually 50% of Coverage A amount
  • Coverage is still effective, regardless of where property is located at the time of loss
  • Standard coverage is for actual cash value - need an endorsement for replacement cost.
  • Limits are placed on personal property losses, e.g. cash, coin collections ($250), jewelry ($1,500).
  • Exclusions include: property of roomers/renters or property in an apartment rented to others.
80
Q

Homeowners Coverage D: Loss of Use

A
  • Combination of additional living expenses and loss of rental income.
  • Limit is usually 20-30%* of Coverage A amount for insurance forms HO-2, HO-3, HO-4, and HO-5. (Insurance is state run and there may be differences between states.)
  • 50% of Coverage C for HO-6 and 10% of Coverage A for HO-8
  • Loss resulting from living in a hotel because residence is damaged or being repaired.
  • Alternatively, if rental income is lost due to a property being damaged, the insured may collect.
81
Q

Homeowners Coverage E: Personal Liability

A
  • Protects the insured against claims arising out of both bodily injury and property damage.
  • The insurer will cover both the damages and the costs of any defense of the claim or suit.
  • The minimum amount of coverage is $100,000 per occurrence.
  • The Coverage E liability insurance is based on a legal liability to pay.
  • The insurer will only pay to the lesser of the damage or the coverage.
82
Q

Homeowners Coverage F: Medical Payments to Others

A
  • Includes coverage for the medical payments to others for injuries that arise even when the insured is not liable for the injury.
  • Medical expenses include reasonable charges for medical procedures, surgical procedures, hospital stays, ambulances, dental care, X-Rays, professional nursing, prosthetic devices, and funeral services.
  • Coverage F does not apply to the insured or members of the insured’s household.
  • This coverage is not liability coverage is not based on fault.
83
Q

What conditions must be met for an individual to collect under Homeowners Coverage F: Medical Payments to Others?

A

One of the following conditions must be met for an individual to receive medical payments coverage from the insured:

  1. The injury occurs while the person has permission to be at the insured location.
  2. The injury occurs while the person is away from the insured location and is caused by a condition at the insured location or on property immediately adjoining the insured location.
  3. The insured injures another person while away from the insured location.
  4. An animal owned by or in the care of the insured injures an individual off the insured premises.
84
Q

HO-4 Contents Broad Form

A
  • Designed for tenants/renters and provides protection for furniture, clothes, and other personal property against the same perils as HO2 Broad Form.
  • Loss of use coverage is limited to 20% of Coverage C (personal property).
  • Tenant’s improvements and betterments coverage protects the insured for the value for any additions, installations, or improvements made by the insured to the rented dwelling.
85
Q

HO-6 Unit Owners Form

A
  • Covers basic and broad named perils, but not building coverage.
  • The insurance responsibility in a condo arrangement is divided between the condo unit owner and the condo association. (Loss assessments typically need an endorsement.)
  • Provides coverage for the personal property of the condo owner for the same named perils as HO2.
  • Provides for loss of use coverage equal to a max of 50% of the amount of Coverage C (personal property).
  • Provides coverage for building alterations and additions, which include appliances, fixtures, real property that pertains exclusively to the insured’s premises, property that is the insured’s responsibility under the condo association agreement and structures owned by the insured other than the condo unit.
  • Endorsements can be added to HO6 to provide open peril coverage on the unit owner’s building items, personal property, loss of unit rental and assessment coverage.
86
Q

Parts of a Personal Auto Policy

A 
Part A: Liability Coverage
Part B: Medical Payments
Part C: Uninsured Motorists
Part D: Coverage for Damage to Your Auto
Part E: Duties After an Accident or Loss
Part F: General Provisions
87
Q

Auto Policy Part A: Liability Coverage

A
  • Covered person include: you, any family member, any person using your car with your permission, any organization responsible for the conduct of someone driving your covered auto, any organization responsible for your conduct while driving a non-owned auto.
  • Coverage amounts are limited as follows: (1) Bodily Damage Per Person, (2) Bodily Damage Per Occurrence, and (3) Property Damage Per Occurrence.
  • Split limits, e.g. 50/100/25, stated in thousands of dollars.
  • State law minimum limits (on bodily damage and property coverage) automatically increase when driving from state to state.
  • Insurance on the auto is primary insurance to recover any loss. Driver’s insurance is secondary.
88
Q

Auto Policy Part B: Medical Payments

A
  • Covered persons include you or any family member while occupying the auto, you or any family member as a pedestrian struck by an auto, any other person while occupying your covered auto.
  • Coverage amounts are limited on a per person or per occurrence basis. e.g. $5,000 limit per person, four persons in a car, then $20,000 limit.
  • Exclusions: public livery, racing and an auto used without permission.
89
Q

Auto Policy Part C: Uninsured Motorists

A
  • Pays what an “under-insured” or uninsured driver should have paid.
  • Under-insured or uninsured must have been at fault.
  • Covered persons include you or any family member while occupying the auto, any other person occupying your covered auto, any person who might have been entitled to damages, you or your family member as a pedestrian.
  • Exclusions: public livery, regular use of a non-owned vehicle, auto used without permission, and auto used in insured’s business.
90
Q

Auto Policy Part D: Coverage for Damage to Your Auto

A
  • Provides direct damage coverage on your covered auto and any non-owned auto (rental or borrowed car).
  • Collision: protects against an accident involving another car, running off the road, into a lake, tree or wall.
  • Comprehensive or Other Than Collision: covers falling objects, fire, theft, explosion, earthquake, windstorm, hail, water, flood, mischief, vandalism, riot, contact with a bird or animal, and breakage of glass.
  • Insurance company has the option of paying for repairs or actual cash value of auto.
  • Exclusions: public livery, radar detectors, most electronic equipment, nuclear damages, auto used without permission, and auto used in insured’s business.
91
Q

Auto Policy Part E: Duties After an Accident or Loss

A
  1. Notify the insurer.
  2. File proof of the loss.
  3. Cooperate with the insurer during the investigation.
  4. The insured must file a police report if there is a theft or accident with an uninsured motorist.
92
Q

Auto Policy Part F: General Provisions

A
  • Only provides coverage in the United States, Puerto Rico, and Canada.
  • A personal auto policy is not effective in Mexico.
  • An insured must notify their insurer about a new car purchase within 30 days (maximum time, but state law varies and most states are 10-15 days) of buying the new car.
93
Q

Defense to Negligence

A
  • Assumption of Risk: a person cannot sue a ski resort if injured while skiing because the skier assumed the risk associated while skiing
  • Negligence on the part of the injured party: the negligent act of the injured party caused the injury.
  • Contributory: a person’s negligent actions contributed to the loss; this is a very severe defense and the injured party cannot recover.
  • Comparative: a person’s negligent actions contributed to the loss but they can recover a portion of the loss from the other negligent party
  • Last Chance Clear Rule: the plaintiff can collect even if there was contributory negligence on the plaintiff’s part if the plaintiff can prove the defendant had a last clear chance to avoid the accident
94
Q

Res Ipsa Loquitur

A
  • The act speaks for itself.
  • If an accident occurs, then there was negligence.
  • For example, if there is an airplane crash, the act speaks for itself and negligence occurred. Airplanes don’t just fall out of the sky.
95
Q

Vicarious Liability

A
  • A person is responsible for the acts of others.
  • e.g. A bartender serving alcohol to a customer who later causes an accident; a parent is responsible for acts of their children.
96
Q

Personal Liability Umbrella Policy (PLUP)

A
  • provides protection against legal obligations that arise from negligent acts.
  • Pays the costs, up to the face of the policy, that result in liability.
  • usually provides defense for the insured in the event of a lawsuit
  • requires higher liability limits on underlying auto and homeowner policies
  • does not pay until the liability limits on the underlying policies are exhausted
  • The coverage is for liability of the insured, their family members or both.
  • The coverage includes exposure at the premises of the residence or away from the residence.
  • Provides coverage for the insured’s legal obligation because of bodily injury or property damage.
97
Q

PLUP Exclusions

A
  1. Coverage for bodily injury or property damage if the act that created the injury or damage was intentional.
  2. Liability that is a result of a business owned or conducted by the insured.
  3. Liability that arises from rental operation conducted by the insured.
  4. Liability that occurs on an uninsured location that is owned by the insured.
98
Q

Differences between Errors & Omissions and Malpractice Insurance

A

Errors & Omissions:

  • Covers negligent acts, errors and omissions.
  • Many professionals carry an E&O policy, such as: accountants, lawyers, engineers, and financial planners.

Malpractice Insurance: provides coverage where bodily injury may occur, such as doctors.

99
Q

Who is eligible for survivorship benefits under social security?

A
  • Children under 18 as well as caretakers of children under 16.
  • Spouse age 60 or older if worker is fully insured.
  • Dependent parents age 62 or older if worker is fully insured.
100
Q

What the three ways that social security retirement benefits can be reduced?

A
  1. Early retirement: the benefit is reduced $1 for every $2 above the earnings threshold ($17,640 in 2019).
  2. Full retirement age: in the year in which you reach FRA, the benefit is reduced $1 for every $3 above the earnings threshold ($46,920 in 2019).
  3. Taxation of Social Security Benefit: up to 85% of benefit may be taxed. Thresholds are based on “combined income” which includes AGI, nontaxable interest, foreign earned income, and 1/2 of retirement benefit.
101
Q

What is covered/not by Medicare Part B?

A

Covered:

  • Welcome to Medicare preventive visit within first 12 months you have Part B.
  • Yearly wellness visits covered once every 12 months if you’ve had Part B for more than 12 months.

Not covered: dental care, dentures, cosmetic surgery, hearing aids, eye exams.

102
Q

Describe Direct recognition programs used with life insurance policies

A

Any amount of cash that is removed from the policy is reflected in a decrease in the amount of dividends and interest paid on that policy.

103
Q

What rights does an irrevocable beneficiary of a life insurance policy have?

A

They have a vested interest in the policy and have to give approval for the owner of the policy to borrow from its cash value.

104
Q

How do you calculate the taxable income resulting from group term life insurance?

A

Table I cost on (face value - $50,000) minus amount paid by insured on full face value

105
Q

Coinsurance feature

A

Same as stop loss

106
Q

IPA

A

Independent Physician Association

107
Q

Risk sharing

A

e.g. incorporation or establishing a general partnership

108
Q

Risk reduction

A

e.g. installing sprinklers, wearing protective clothing, or wearing a hard hat

109
Q

Risk transfer

A

Insurance

110
Q

Dynamic risk

A

The core of risk resides in the change in the environment caused by the changing human condition

111
Q

Collateral source rule

A
  • The person who commits the tort will not benefit or be relieved of obligation and responsibility just because the victim has insurance.
  • The survival of a tort action means that even in the event of death of the victim or the tortfeasor (the person who commits the tort), the tort will remain actionable.
112
Q

Tort

A

A wrongful act or an infringement of a right (other than under contract) leading to civil legal liability

113
Q

Judicial branch of government

A

Charged with interpreting and rendering opinions about state insurance code rulings that have the full force of law

114
Q

Executive branch of government

A

Charged with interpreting and enforcing state insurance code rulings that have the full force of law

115
Q

Inland marine insurance

A

A category of insurance that protects against property losses to goods in transit

116
Q

Ocean marine insurance

A

Covers the hull of the ship

117
Q

Change of occupation provision on disability insurance policy

A

Permits the insurer to reduce benefits payable to match what the premium would purchase at the new, riskier position

118
Q

Renewable disability insurance policies are

A

non-cancelable or guaranteed renewable

119
Q

HO-3

A

Special Form, provides open peril coverage on both dwellin and appurtenant (secondary buildings) structures.

120
Q

Verbal threshold

A

Verbal threshold is a term used in insurance law, which refers to a limitation on coverage for personal injuries unless one of the following types of injury is sustained:

  • Death
  • Dismemberment
  • Significant disfigurement or scarring
  • Displaced fracture
  • Loss of a fetus
  • Permanent injury
121
Q

Modified no-fault auto insurance

A
  • In no way impedes the right of tort action.
  • Allows suits when verbal and dollar thresholds have been crossed.
  • injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached.
122
Q

Dollar threshold

A

damage occurring above a certain amount, not a limit to actionable compensatory amounts.

123
Q

What is the role of an adjuster

A
  • assist the insured in preparing a proof of loss statement
  • determine whether there was a loss covered by the policy
  • determine the amount of the loss
124
Q

What is the role of the underwriter

A
  • classify the loss as standard, substandard, or ineligible
125
Q

Long-term care insurance

A

Covers skilled nursing care (residents are seen regularly by physicians) and intermediate care (residents aren’t seen daily by physicians)

126
Q

Split-dollar life insurance in a business setting

A
  • It can be a fringe benefit to an employee.
  • Insurance premiums are usually split between the employer and the employee (insured).
  • It may be used to fund a buy-sell stock redemption (entity purchase) agreement.
  • Only the portion of the benefit in the policy that is attributable to the actual contributions of the company are subject to the claims of company creditors.
  • The insurance death benefit is usually dividend between the employee and the employer.

Exam time (6 decks)

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