Insurance Planning

Question 1

Mutual Life Insurance Company Characteristics

Answer 1

• Owned by policyholders.
• Invest in securities.
• Investment income (yields) are returned to members as dividends or reductions in premiums.

Question 2

HO Policy Types

Answer 2

• HO-1 Basic Form: The most basic and limited type of policy for single-family homes, HO-1s are all but nonexistent nowadays
• HO-2 Broad Form: A more commonly used policy and a slight upgrade from the HO-1
• HO-3 Special Form: The most common type of homeowners insurance policy with broader coverage than the HO-2
• HO-4 Renters Contents Broad Form: A policy type that is specifically for renters
• HO-5 Comprehensive Form: The most comprehensive form of homeowners insurance and the second most common policy type for single-family dwellings
• HO-6 Unit-owners Form: A type of coverage designed for condo owners
• HO-7 Mobile Home Form: The type of policy you get if you own a mobile or manufactured home
• HO-8 Modified Coverage Form: A special type of homeowners insurance for older homes that don’t meet insurer standards for other policy forms

Question 3

Medicare Skilled Nursing Care 100-day Rule

Answer 3

• Full coverage for first 20 days.
• $185.50/day (copay) for next 80 days.
• No coverage after 100 days.

Question 4

What Happens to an Insurance Claim in Cases of Fraud?

Answer 4

The insurance company may rescind the contract.

Question 5

Property Insurance Haircut Formula

Answer 5

(Coverage Amount / Current Value of Property) * Co-insurance percentage

Question 6

Equity Indexed Annuity Participation Rate

Answer 6

This is the percentage that the value of an equity indexed annuity will reflect market returns. For example, if the market returns 10%, a 90% PR will return 9%.

Question 7

Structured Settlement Features for Personal Injury Claim

Answer 7

• Pays regular, tax-free payments for a specified length of time.
• Income attachable by creditors.
• Schedule cannot be modified once enacted.
• Remainder included in gross estate.

Question 8

Qualified / Non-qualified Variable Annuity Rules

Answer 8

• Qualified allows deduction for contributions, non-qualified does not.
• Contributions grows tax-deferred.
• Invested in chosen mutual funds.
• 10% penalty for early withdrawals on the taxable portion of the withdrawal. (before 59 1/2).

Question 9

Hybrid Life/LTC Policies Pay LTC Benefits From The Cash Value or Death Benefit?

Answer 9

Death Benefit

Question 10

Section 162 Plan or Executive Bonus Insurance Plan Features

Answer 10

Permanent insurance owned by the employee but paid for by the company (tax deductible) that can be used to provide perks such as a death benefit as well as cash value for retirement income.
The plan is completely portable and owned by the employee and does not require IRS approval.

Question 11

Property Insurance 80% Rule

Answer 11

If the insured value of of the property is less than 80% of the FMV of the property, the insurance company will only cover a proportionate amount based on the insured ratio. The ratio formula is:

Insured Amount / (FMV x .8) = Coverage Ratio

(Coverage Ratio x Claim) - Deductible = Insurance Payout

Question 12

Define the “Goodman Triangle”

Answer 12

Also called the “Unholy Trinity” of insurance, the Goodman Triangle occurs when the owner of a policy, the insured, and the beneficiary are all different people.

In the event of the insured’s death, the death benefit is considered a taxable gift from the policy owner to the beneficiary.

Question 13

Accumulation Annuity Features

Answer 13

Works like universal life insurance:

• Flexible contributions.
• Variable interest return.
• Flexible annuitization period.
• Flexible payments.

Question 14

Medicare Parts A - D

Answer 14

• Part A (Hospital Insurance): Covers in-patient hospital care.
• Part B (Medical Insurance): Covers out-patient care.
• Part C (Medicare Advantage):
  Offered by private companies, covers part A and B as well as extra coverages such as vision, hearing, dental, etc. Most cover Part D as well.
• Part D (Drug Insurance): Helps cover the cost of prescription drugs.

Question 15

Flex Spending Account Features

Answer 15

• Offered to employees covered by group health plans.
• Annual, deductible contributions (up to $2,750) to pay for qualified medical expenses.
• Unused funds may be used for an additional 2.5 months and up to $550 may be carried over to the next year.
• Remaining unused funds return to the employer.

Question 16

Social Security Disability Rules

Answer 16

• Totally disabled (unable to work) for a year or more.
• Don’t qualify for the “other work” definition.
• Need to have earned 20 credits in the last 10 years.
• Benefits continue until you are able to work again on a regular basis.

Question 17

MediGap Features

Answer 17

• Medigap is standardized supplemental coverage offered by private companies and all offer the same basic benefits.
• Only covers one person and not spouses.
• They are guaranteed renewable.

Question 18

Medicare Medical Savings Account Definition

Answer 18

• A special type of Medicare Advantage plan (Part C) composed of a Savings Account and High Deductible Health Plan.
• The account is funded with variable deposits from Medicare versus by you.
• Withdrawals are tax free if used for qualifying medical expenses.

Question 19

Self-employment Taxable Disability Ratio

Answer 19

0%

Question 20

Managed Care Options

Answer 20

• Health Maintenance Org. (HMO)
• Preferred Provider Org. (PPO)
• Point of Service (POS)

Question 21

Most disabilities are the result of:

Answer 21

Illness

Question 22

COBRA Feaures

Answer 22

• Continuing coverage for employees who lose access to a group health plan by being fired or having their hours reduced.
• “Gross negligence” is the only disqualifying reason.
• Applicable to employee’s spouse, former spouse, or children.
• Employee or beneficiary has 60 days to apply
• May have to pay up to 102% of premiums.
• 18 months - Termination
• 29 months - Disability
• 36 months - Death, divorce, or aging-out.

Question 23

Modified Endowment Contract (MEC) Definition

Answer 23

A life insurance contract that has failed the IRS’s 7 pay test, that is it’s over funded within the first seven years.

MECs lose all favorable tax treatment and are taxes as LIFO.

Question 24

Define Split-Definition Disability

Answer 24

Insured cannot perform the duties of their own occupation for two years, and then they cannot perform the duties of any occupation.

Question 25

Wait-and-See Agreement Features

Answer 25

The company may first buy the deceased owner’s shares. Should the company elect to not purchase the shares immediately, then the surviving owners may purchase the shares. Should the surviving owners not purchase all of the shares, then the company would be forced to purchase the remaining shares.

Question 26

What Types of Annuities Grow In Value Due to Company Credits?

Answer 26

Excess Interest Annuities and Equity Indexed Annuities

Question 27

What is an aggregate stop-loss policy?

Answer 27

Aggregate stop-loss protects the employer against claims that are higher than expected. If total claims exceed the aggregate limit, the stop-loss insurer covers the claims or reimburses the employer.

Question 28

What is a non-forfeiture option?

Answer 28

The ability to get some value from a life or LTC insurance if you’re unable to continue paying premiums.

Question 29

What’s the determining factor in how much of a LTC premium is tax deductible?

Answer 29

Age of the policyholder. The older, the higher the limit.

Question 30

What’s the most important factor when selecting an insurance company?

Answer 30

Financial soundness of insurer.

Question 31

Group Term Insurance may only be converted to _____ upon end of service.

Answer 31

Permanent Insurance