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2024 November CFP Exam > Insurance Planning 11% > Flashcards

Insurance Planning 11% Flashcards

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1
Q

Pure Risk

A

Insurable

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2
Q

Speculation risk

A

Gain or loss on investment

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3
Q

Fundamental Risk

A

Impersonal group risk (recession

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4
Q

Particular risk

A

Personal (your disability)

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5
Q

Static risk

A

Caused by other than changes in the economy (earthquake)

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6
Q

Dynamic risk

A

Caused by changes in the economy

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7
Q

Peril

A

a cause of a financial loss (fire, theft, collision, hurricane

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8
Q

What must be true for a risk to be insurable?

A
  • there must be a large number of homogeneous exposures
  • risks must be measurable and determinable
  • losses must be accidental as to the insured
  • losses cannot be catastrophic to the insurer
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9
Q

Principle of indemnity

A

cannot make a profit to make whole

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10
Q

Insurable interest

A

for life: at inception and for property: at the inception and at the time of loss

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11
Q

Contract is personal

A

cannot be transferred or assigned without the consent of the insurer with the exception of life insurance

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12
Q

Contract of adhesion

A

ambiguities are changed to the writer/insurer, a take it or leave it contract. No negotiating approved as is for sale in state by the state insurance commissioner

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13
Q

Contract is unilateral

A

one promise only and made by the insurer and conditional (conditioned on the insured paying premiums)

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14
Q

The statute of limitations for tort decisions

A

2 years up to 3 for property damage

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15
Q

Tort Law- Comparative Negligence

A

If both the plaintiff (injured party) and the defendant contribute to the circumstances that result in injury then the damages are adjusted to reflect their respective percentage of fault

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16
Q

Tort Law -Contributory Negligence

A

If the injured party contributes in any way to the circumstances that result in injury, then the injured party cannot collect any damages

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17
Q

Agency Law

A

An Agency and agent binds the principal if in course and scope of agenecy, may result from express, implied, or apparent authority

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18
Q

Insurance is Regulated by:

A

NAIC - National Association of Insurance commissioners) policy group - State

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19
Q

Insurance is rated by

A

A.M. best (A++-S), Moody’s (Aaa-B3), S+P (AAA-B)

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20
Q

Variable Life

A

investment decisions are made by insured, agent must have insurance license and securities license to sell, guaranteed death benefit and possible equity investment

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21
Q

Universal Life

A

Flexible premiums adjustable death benefit, only need insurance license to cell

A- benefit is the greater cash value or death benefit
B- sum of cash value + death benefit

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22
Q

Needs Approach

A

The present value of dependents needs, including last medical, funeral, adjustment period, mortgage payment fund, dependency cost of living, education fund, and retirement fund

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23
Q

Human Life Approach

A

the present value of income expected less taxes and decedent consumption

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24
Q

Capitalized Income Approach

A

Decedent’s income (less taxes and consumption) divided by the inflation adjusted investment rate

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25
Q

Life Insurance Loans Taxation

A

Taxable if Modified Endowment Contract (MEC) and only to extent earnings are withdrawn as loans

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26
Q

MEC

A

Fails the 7 pays test all single premium insurance policies are these, does not affect taxation of death benefits

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27
Q

Premiums - Life Insurance Taxation

A

Not tax deductible for personal or business insurance, except group-term insurance

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28
Q

Paid up Additions

A

purchases additional insurance each year for insured regardless of health or occupation

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29
Q

One-year Term 5th Dividend option

A

Adds term insurance each year to the policy face amount equal to cash value of the policy

30
Q

Buy Sell Agreements - Cross purchase calculation

A

Number of policies = # partners X(# partners-1)

Advantage: step up in basis for remaining partners

31
Q

Personal Auto Policy (PAP)

A

covers liability, medical payments, uninsured motorist, damage to own auto - replacement vehicle coverage is for 30 days, if new 14 days

32
Q

PAP rules

A

owner of Vehicle is primary insured
limits are expressed $100/$300/$50
-Bodily, Accident, property damage

33
Q

Personal Liability Umbrella Policy (PLUP)

A

Need for it is usually if $1-10 million in excess of underlying auto and home coverage
- premiums are inexpensive
- provides legal defense at no cost against the policy limits
- covers all members of HH
-covers personal injury liability

34
Q

Medicare

A

A federal health insurance plan for people who are 65 years or older, retired or not

35
Q

Medicare Part A

A

Hospital Insurance
- SS Tax
-skilled nursing care, home health care, hospice care
-60 consecutive day after no care benefit period
- $1,632 deductible per benefit period.
-For 60-90th day of care $408 per day coinsurance
-After 90th day, 60 lifetime days $816 per day coinsurance

36
Q

Medicare Part B

A

Medical Insurance -optional
-doctors services, ambulance, diagnostic testing, outpatient therapy, emergency room visits, preventative care, X rays

Premium $174.70
Deductible: $240

37
Q

Medicare Part D

A

prescription drugs

38
Q

Medicare: Part B NOT COVERED

A
  • routine physical exams, dental care, cosmetic surgery, hearing aids, eye exams, or care received in a foreign country
39
Q

Long Term Disability

A

60-70% of of gross pay
may be integrated with SS to reduce premiums in group plans
30-180 day elimination period which essentially serves as a deductible
- needs to be non-cancellable or guaranteed renewable

40
Q

Short Term Disability

A

Covers up to 2 years benefit (usually group)

41
Q

LTC Insurance

A

Medicare does not provide LTC
- non cancelable or guaranteed renewable
Cannot perform 2 of 6 ADLs
- small Fed income tax deduction for premiums

42
Q

ADLs

A
  • eating, bathing, dressing, transferring, toileting, or continence
43
Q

Employer Provided Term Insurance

A

Not taxable to employee for 1st $50k of death benefit provided

44
Q

HO Insurance: Open Perils

A

all perils covered, unless excluded

45
Q

HO Insurance: Broad

A

18 perils

46
Q

HO Insurance: Basic

A

12 perils

47
Q

HO Insurance: General Exclusions

A

Flood, intentional loss, Earth movement, neglect

48
Q

HO-2

A

Coverage A: Dwelling - Broad
Coverage B:Other Structures - Broad
Coverage C:Personal Property - Broad
Coverage D: Loss of use - Broad
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

49
Q

HO Insurance Exclusions

A

Watercraft with more than 25 hp, business activities, motor vehicle liability, uninsured locations

50
Q

HO-3

A

Coverage A: Dwelling - Open
Coverage B:Other Structures - Open
Coverage C:Personal Property - Broad
Coverage D: Loss of use - Open
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

51
Q

HO-4

A

Coverage A: Dwelling - N/A
Coverage B:Other Structures - N/A
Coverage C:Personal Property - Broad
Coverage D: Loss of use - Broad
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

52
Q

HO-5

A

Coverage A: Dwelling - Open
Coverage B:Other Structures - Open
Coverage C:Personal Property - Open
Coverage D: Loss of use - Open
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

53
Q

HO-6

A

Coverage A: Dwelling - Broad
Coverage B:Other Structures - Broad
Coverage C:Personal Property - N/A
Coverage D: Loss of use - Broad
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

54
Q

HO-8

A

Coverage A: Dwelling - Basic
Coverage B:Other Structures - Basic
Coverage C:Personal Property - Basic
Coverage D: Loss of use - Basic
Coverage E: Personal liability - bodily injury/personal property - NOT personal injury
Coverage F - Medical payments - Not based on Fault, does not cover insured family

55
Q

Indemnity

A

Pay for losses has deductible coinsurance on major medical and stop loss provision doctors are independent

56
Q

HMO

A

uses co-pay/ doctors are employees of HMO

57
Q

PPO preferred provider network

A

uses co-pay, Doctors are independent of insurer. Doctors agree to charge reduced rates in exchange for increased patient volume.

58
Q

POS point of service

A

combines HMO PPO indemnity as insured moves among providers deductible, copays change accordingly

59
Q

EPO exclusive provider organization

A

Similar to HMO but no referral needed to see specialist

60
Q

Health Savings Accounts

A

may be set up by individuals or employers and allow eligible individuals to save for health care costs, contributions made are tax deductible and distributions to pay qualified ME are excluded from income, cary over amounts to future years left in account

61
Q

FSA

A

Commonly used by employers as an employee benefit that permits them to defer income $3,200 limit tobe used to pay Health care expenses with pre tax dollars

62
Q

FSA rules

A

use it or lose it, must use contributions for ME by 2 1/2 months after the end of the year, can be used for optional medical procedures, child care or dependent care, reimbursed for OTC medicine

63
Q

SS Benefit Reduction

A

Born - 1937 or earlier - 65 full retirement, 36 months before Age 62, average percentage reduction 0.555, totaling 20%

Born - 1943- 1954 - 66 full retirement, 48 months before Age 62, average percentage reduction 0.520, totaling 25%

Born - 1960 or later - 67 full retirement, 60 months before Age 62, average percentage reduction 0.5, totaling 30%

64
Q

When can a widower get their spouses SS

A

60 years old

65
Q

Non-qualified HSA distributions will be waived after age

A

65

66
Q

Most restrictive Disability Insurance

A

Can’t perform any occupation ever

67
Q

Medicare Advantage

A

like a HMO, PPO add care not offered under Medicare: Vision, Dental, etc.

68
Q

Transfer of Policy for Value

A

Death benefits are taxable to the transferee to the extent proceeds exceed basis

69
Q
A
69
Q

Exceptions to Transfer for Value Rule

A
  • Transferred to the insured
    -to a business partner of the insured
    -to a partnership of the insured
    to a corporation in which insured is a shareholder or officer
    -that results in carryover basis from transferor to transferee

2024 November CFP Exam (6 decks)

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