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CFP Supplement > Insurance > Flashcards

Insurance Flashcards

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1
Q

Individual Practice Association (IPA)

A
  • HMO model under which the subscribers have the greatest flexibility
  • made up of physicians who have own office locations
  • fee for service contracts
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2
Q

inland marine

A

coverage included in homeowners policy as scheduled endorsement/floater

protects property when it’s away from home
“personal articles floater”

  • personal furs
  • jewelry/silverware
  • golf equipment
  • camera, art, antiques, stamp/coins, musical inst, wedding presents
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3
Q

Insurance on Watercraft

A

only covers what’s permanently attached (i.e. NOT fishing poles)

HO-3 covers boat up to 25HP (small)

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4
Q

Who needs a PLUP?

A

Everyone

You could be vicariously liable for others

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5
Q

BAP

A

Business Auto Policy

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6
Q

CLUP

A

Commercial Liability Umbrella Policy

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7
Q

Personal Auto Policy

A

Liability Coverage
Medical Payments
Uninsured Motorist
Damage to your auto
Duties after an accident
General provisions

Let’s MUD Down in Georgia

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8
Q

conditional receipt

A

temporary insurance coverage, contingent on applicant’s ability to present evidence of insurability

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9
Q

Disability Insurance Taxation
Prem paid by ER

A

Benefit Taxed to EE regardless of of other income

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10
Q

Selling Insurance out of state

A

only if licensed

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11
Q

Medicaid Coverage Calculation

A

Assets/monthly care cost = month delay +
Gifts made/monthly care cost = months delay

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12
Q

unholy trinity

A

owner, insured, benef all different
If insured dies, results in taxable gift from owner to benef

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13
Q

National Association of Insurance Commissioners (NAIC)

A
  • accredit state regulatory offices
  • indirectly in exchange of info and prep of recs

NO-direct involvement, do not assure uniformity, do not regulate state commissioners

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14
Q

human life value

A
  • average annual earnings prior to retire
  • cost of self-maint
  • RWLE
  • Approp capitalization rate

NOT-specific like annual SS benefits after retire

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15
Q

fine arts and antiques

A

appraised

not replacement cost or actual cash value

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16
Q

Annuities: premature distribution penalty tax

A

Immediate Annuities - NO
Deferred Annuities - YES

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17
Q

Custodial Nursing Home Coverage

A

LTC if coverage is broad
Medicaid

Medicare - NO
Private Medical - NO (unless convalescent)

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18
Q

Coverage for Home

A

80% of home replacement cost (not land)

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19
Q

Liability for Owner on Agent’s actions

A

Owner ratifies/approves agent’s actions when they utilize funds/product

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20
Q

Change of Occupation Provision

A

permits insurer to decrease benefit in instance when insured takes on more hazardous job, reflecting what current premium would provide under new risk

What effect will a job change resulting in increase risk have on disability coverage?

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21
Q

annuitant

A

person receiving annuity

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22
Q

stock redemption buy/sell agreement

A
  • must have a corporation as a party to the contractual agreement
  • NO effect on cost basis
  • versus cross purchase agreement
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23
Q

Life Insurance Conversion

A

Term to Whole/CV/Permanent

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24
Q

Variable

A

Investor NOT Company chooses invesetments

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25
Q

identification of level of care

A

being established when a person is deemed to need skilled care, intermediate care, or custodial care

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26
Q

Characteristic of Group Term Life Insurance

A
  • minimum group size 10, unless specific req met
  • NO medical exam required
  • coverage amts may be based on salary level, NOT job class or length of service
  • death benef payout can be installments or lump sum
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27
Q

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

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28
Q

mutual life insurance companies

A
  • owned by policy holders
  • pay out profits in either dividends or reduced premiums
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29
Q

Most/Least ways to secure Long-term care coverage

A

Good

  • Continuing Care Retirement Communities
  • Association Arrangements
  • Disability Income Policy Rider (converts Disability into LTC)

Bad

  • Life Insurance Policy Rider, diminshed coverage that one will need at some point
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30
Q

Insurance Needs

A

Depends on age, family, net worth

Health carries a lot of weight

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31
Q

Karen’s employer has a non-contributory indemnity health plan. The plan has a $250 deductible with 90/10 coinsurance and out-of-pocket limit is $10,000. Karen has the following medical expenses: - $75 for a visit to her family physician - $350 for ultrasound - $3,800 surgeon’s fees How much will Karen have to pay this year?

A

Karen’s total medical expenses are $4,225 ($75 + $350 + $3,800). She must pay the deductible of $250 plus 10% × ($4,225 - $250) = $647.50

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32
Q

COBRA must provided covered EE

A
  • ER has terminated health plan
  • EE terminated for incompetence

NOT provided

  • ER out of business
  • EE terminated for gross misconduct
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33
Q

fully insured group health insurance plan

A
  • all benefits from a comprehensive medical expense pln are ALWAYS tax free to EE when ER pays deductible
  • premiums always deductible to ER
  • when self-funded (discriminatory), some or all benefits taxable to KE
  • Accidental Death and Dismemberment (AD&D) tax free
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34
Q

skilled nursing care

A

under long term care, highest level of care provision calling for services where residents are seen regulary by physicians

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35
Q

irrevocable beneficiaries of life insurance

A
  • same rights as policy owner
  • insured/owner must secure permission from irrevocable benef with regard to activitity or dispositive change
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36
Q

settlement vs nonforfeiture options vs dividend options

A

settlement - how can i take my DB?

  1. lump sum
  2. interest only
  3. annuity (fixed amt, life income, fixed period, life income w/period certain, joint/last survivor)

nonforfeiture - surrender/terminate

  1. cash
  2. single prem paid up life insurance policy
  3. extended term insurance

dividend options - during life, CRAPO

  1. cash
  2. reduce future prem
  3. accumulate interest
  4. paid up permanent additions
  5. One-year term addition
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37
Q

life insurance death benefits: income tax and gross estate

A

generally income tax free
included in gross estate

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38
Q

group model of HMO

A

“network model”
has a gatekeeper

39
Q

staff model HMO

A

corporation and medical staff members including doctors, nurses and clerical staff are EEs of HMO

has a gatekeeper

40
Q

“group major medical”

A

out of pocket

41
Q

risk mgmt strategies

  1. installing sprinklers
  2. wearing protective clothing
  3. establishing general partnership
  4. incorporating
  5. health insurance deductibles
  6. carrying auto insurance
  7. not taking job on oil rig
A
  1. risk reduction
  2. risk reduction
  3. risk sharing
  4. risk sharing
  5. risk retention
  6. risk transfer
  7. risk avoidance
42
Q

risk management strategies

  1. low frequency - low severity
  2. low frequency - high severity
  3. high frequency - low severity
  4. high frequency - high severity
A
  1. retention
  2. transfer (insurance)
  3. retention/reduction (non-insurance transfer)
  4. avoidance
43
Q

“unbundled” life insurance

A

universal, flexible

44
Q

aleatory

A

random, uncertain
insured - pays 1 prem gets big payout
insurer - receives 100 prem, never pays out

45
Q

Insurer can refuse payment of claim based on time

A

incontestable clause
suicide clause

46
Q

negligence per se

A

act itself constitues negligence, no burden to prove (i.e. drunk driving)

47
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

48
Q

guaranteed renewable

A

premiums can be changed as long as it’s done for entire rate class

49
Q

Insurance Needs Analysis Approaches

A
  1. Needs approach
  2. multiple of earnings approach
  3. income replacement method
  4. human life approach
50
Q

blackout period

A

period after youngest child leaves home

51
Q

dependency period

A

“critical period”

period prior to children turning 18

52
Q

life insurance: reinstatement clause

A
  • All activity must occur ‘during’ the available period and not ‘after’ the specified period.
  • The policy must not have been surrendered.
  • A new incontestable period begins upon renewal and reinstatement of the policy and the insured must attest to the fact that there has been no change in the insured’s health
  • During a specified period, the policy owner may reinstate a lapsed policy upon payment of past-due premiums and proof of insurability.
53
Q

state insurance commissioners and insurance regulation

A
  • executive, enforce
  • determine if insurer meets requirements to obtain license
  • conduct financial investigations of insurers operating w/in state
54
Q

state courts and insurance regulation

A
  • judicial
  • rule on constitutionality of insurance laws
  • render decisions/interpretations on meaning of policy terms
55
Q
A
56
Q

state legislature and insurance

A

responsible for proposal of bills and passage of legislation that governs the conduct of insurance organizations and their business

57
Q

split dollar life insurance

A
  • business use
  • Stock redemption plans can be funded by split-dollar life insurance.
  • ONLY portion funded by company’s actual contributions are subject to company’s creditors
  • The insurance premium AND death benefit of a split-dollar life insurance policy is generally divided between the employee and the employer.
58
Q

contigent business interruption insurance

vs

business interruption insurance

A

covers direct effect interrpution when disrupition occurs with business you do not own (customer, supplier)

…with your own business

59
Q

insurance policy: declaration section

A

insured’s name

60
Q

insurance policy: coverage section

A

perils against which the insurer will provide coverage

61
Q

entire contract clause

A

policy and the application attached make up the insurance agreement

62
Q

common disaster clause

A

provides for policy disposition in the event of a common death of the insured and primary beneficiary

63
Q

dynamic risk

static risk

A

core of risk resides in the change in the environment caused by changing human condition
NOT insurable

NOTsignificantly affected by the business environment and which remains constant over time

insurable

64
Q

refund annuity

A

refunds unused portion of principal

65
Q

pure life annuity

A

only pays during life of one person and stops pmts when that person dies

66
Q

inland marine insurance

A

protects against property losses to goods in transit.

67
Q

ocean marine insurance

A

protects against property losses while travelling on water

68
Q

modified no fault coverage

A

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

69
Q

split limit liability coverage
$250,000/$600,000

A

if personally liable, company will pay up to $250,000 per person or $600,000 total for liability

per person/per accident

70
Q

insurance adjuster

A
  • Assist the insured in the preparing the proof-of-loss statement.
  • Determine whether there was a loss covered by the policy.
71
Q

insurance underwriter

A

classifies loss as standard, substandard, or ineligible

72
Q

collateral assignment

A

temporary transfer of some or all of the ownership rights whereby such rights revert to the assignor upon satisfaction of agreed-upon conditions.

73
Q

absolute assignment

A

irrevocable transfer of all ownership rights which can be accomplished through a sale or gift.

74
Q

split definition of disability

A

‘Own occupation‘ changing to‘modified any occupation’

At first, the insured is considered disabled if he or she cannot perform his/her specific occupation. After a period of time (usually 2 to 3 years), the definition is broadened to include any occupation to which the insured is fit to undertake based education or training (modified).

75
Q

termination of disability income insurance benefits

A
  • insured has returned to work
  • max benefit period reached

still continued if company cancels policy

76
Q

disability insurance: probation period

A

included in a Disability Income policy, is the time the insured must wait after the issue of the policy before specified conditions will be covered.

77
Q

35 year old
“fully insured” for disability under social security

A

40 quarters (or periods) in total to be eligible for benefits, and of these, 20 quarters must have occurred in the 40 quarters immediately before becoming disabled.

78
Q

home insurance formula

A

coverage
fmv x coinsurance % X loss (- deductible)

79
Q

HO-3

A

Special Form and provides open peril coverage on both dwelling and appurtenant structures

80
Q

Comprehensive Personal Liability (CPL) policy

A
  • part of standard ISO homeowners policy or stand alone
  • NOT used to cover E&O or business pursuits
81
Q

no-fault auto insurance: Verbal Threshold

A

law suits may be allowed when there is a fatal injury

no such thing as “pure no fault”

82
Q

Commerical General Liability Contract

A

NO other structures coverage

83
Q

Requisites for Insurable Risk

A
  • NOT Catastrophic risk to insurer
  • Homogeneous - large number of similar exposures
  • Accidental (insured)
  • Determinable and measurable

CHAD has Insurable Risk

84
Q

Elements of valid contract

A
  • Consideration - promise for premium
  • Offer and Acceptance - sign valid contract
  • Legal competency of all - 18+ unless cosigned, mentally competent
  • Lawful purpose - legal activities

COALL

85
Q
A
86
Q

Life Insurance Types

A
87
Q

Taxation of Annuities - Withdrawals

A

pre-82 - FIFO
post-82 - LIFO

88
Q

Patient Protection and Affordable Care Act (PPACA)

A

out of pocket limit

89
Q

Long Term Care - Tax Benefits

A

premiums tax deductible and benefits tax free if “qualified”…

  • no surrender value
  • limited to qualified ltc services
  • use dividends to reduce future prem or inc benef
  • meet consumer protection laws
  • does NOT pay for expenses covered under Medicare

benefit - tax free if qualified
premium - deductible based on age

>70 years old - $5430 max deduction

90
Q

Summary of HO Forms

A
91
Q

Reduction of Social Security Benefits: Early Retirement

A

5/9 per month for first 36months
5/12 per month beyond 36months

permanent reduction

92
Q

Summary of Social Security Benef

A
93
Q

Group Long Term Care Plan

A
  • premiums paid by ER excluded from EE income
  • Benefits received tax-free by EE
  • NO prem deduction limit for ER
  • LTC insurance CANNOT be included in cafeteria plan
  • LTC can be reimbursed by FSA
94
Q

Medicare Advantage

A
  • works like HMO, PPO, POS
  • provides coverage beyond A and B…covers vision, dental, hearing, maybe cosmetic
  • coverage is regional, only emergencies outside of coverage area

CFP Supplement (6 decks)

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