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CFP > Insurance Planning > Flashcards

Insurance Planning Flashcards

1
Q

Types of Risk

A
  • Pure: chance of loss or no loss (insurable)
  • Speculative Risk: chance of loss gain or no loss (uninsurable)
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2
Q

Fundamental vs. Particular Risk

A

Fundamental:

  • Risk that can impact a large number of people. E.g natural disaster
  • Difficult for insurance companies to insure

Particular:

  • impacts one person
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3
Q

Subjective vs. Objective Risk

A
  • Subjective is based upon the individual’s perception of risk.
  • Objective risk is the difference between an actual loss from expected loss
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4
Q

Nonfinancial vs. Financial Risk

A
  • Nonfinancial results in a loss that is not monetary
  • Financial risk results in money being lost
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5
Q

Probability of Loss

A
  • the chance of a loss occuring
  • greater the sample size, the more efficient
  • the more measurable the loss, the more efficient the premiums
  • life insurance is efficient; long-term care is not
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6
Q

Law of large numbers

A
  • the more often an event occurs, the more likely that the true probably will reveal itself
  • helps reduce objective risk
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7
Q

Peril

A
  • The actual cause of the loss: fire, wind, earthquake, etc.
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8
Q

Types of Hazards

A
  • moral hazard: based on a character flaw (e.g. filing a false claim)
  • morale hazard: the indifference created because person is insured (e.g. leaving car unlocked)
  • physical hazard: a tangible condition that increases the likelihood of a peril occuring (e.g. icy road)
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9
Q

Requisites for an insurable risk (5)

A
  • A large number of homogenous exposures
  • Losses must be accidental from the insured’s view
  • losses must be measurable and determinable
  • losses must not pose a catastophic risk for the insurer
  • premiums must be reasonable and affordable
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10
Q

Legal Principles of Insurance Contracts

A
  • Mutual consent
  • Offer and acceptance - automatic; sometimes conditional
  • Performance or delivery - the party to a contract must perform a duty
  • lawful purpose - must not be illegal
  • legal competency - minor can’t sign contract
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11
Q

Indemnity

A

Insured is only entitled to compensation to the extent of the insured financial loss.

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12
Q

Subrogation clause

A

The insured can’t receive compensation from the insurance company and a 3rd party for the same claim.

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13
Q

Insurable interest

A
  • The insured must have an emotional or financial hardship resulting from damage, loss, or destructive (related by blood, marriage, or business)
  • Property and liability - must have an insurable interest both at inception and at time of loss
  • Life insurance - only must have insurable interest at inception
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14
Q

Warranty

A

Warranty: a promise made to insurance company (e.g. installing sprinklers) by the insured.

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15
Q

Concealment

A

Concealment: being silent to a material fact

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16
Q

Adesion

A

Insured has no negotion power for any terms; rulings are usually in favor of insured if there is a gray area.

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17
Q

Aleatory

A

Aleatory: unequal exchange of mone

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18
Q

Unilateral

A

Only one promise in an insurance contract, which is made by the insurer and is to pay in the event of a loss

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19
Q

Law of agency

A

Agent is a legal representative of the insurer.

General agent - represents on insurer

Independent agent - represents multiple companies

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20
Q

Express, Implied and Apparent Authority

A
  • Express: Authority given to the agent through the agency agreement
  • Implied: Authority is perceived based on: signs on door, business cards, etc.
  • Apparent authority; no authority exists; if incorrect representation is made by agent or agent is no longer affiliated with company, insurer is still responsible
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21
Q

Waiver and Estoppel

A
  • Waiver: Relinquishing a known legal right
  • Estoppel: Being denied a right that you would normally have. Applies when one person gives false information which causes harm to another person.
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22
Q

Types of insurance companies

A
  • Stock insurance companies: Issue stock
  • Mutual insurance companies: Owned by policy-holders, not shareholders
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23
Q

Underwriting

A

The process of classifying applicants into risk pools.

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24
Q

Adverse seletion

A
  • The tendency for higher than average risks to purchase or renew insurance.
  • Premiums depend upon the balance of favorable and unfavorable risks.
  • Managed through underwriting by:
    • raising premiums for high risks on front end
    • raising premiums for high risks on back end
    • denying insurance for high risks
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25
Q

Reinsurance

A
  • used by insurance companies that don’t want to hold all the risk
  • Insurer transfers the all or some of the risk to another insurer.
  • reduces exposure to catastophic risk
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26
Q

Features of insurance contracts

A
  • Definitions
  • Declarations - amount of coverage
  • Description of what is insured - listing of items/address
  • Perils covered
    • open perils - any kind of loss
    • named perils - specific kinds of loss
  • Exclusions
  • Conditions - what insured and insurer must do
  • Other provisions (errors of age/sex, suicide exclusion, payment of benefits (how/who paid), grace period - generally 30-60 days)
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27
Q

Riders and Endorsement

A
  • Written additions to policy
  • Customization of policy.
  • Riders take precedence.
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28
Q

Deductibles

A

Amount insured has to pay before benefits begin

Help eliminate small claims

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29
Q

Copayment

A

Paid in addition to deductibles

Insured pays a portion of the losses

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30
Q

Coinsurance**

A

Helps deter undervaluation of property by insured (offsets having 300K insurance on a 500K property)

Amt. of insurance carried/(coinsurance*loss)=

amount of settlement, - deductible = amount paid

Pay the higher of the calculated amount or the depreciated amount (actual cash value)

See book example

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31
Q

Valuation of insured losses

A
  • agreed-upon value (appraised art, antiques)
  • replacement cost value
  • actual cost value (ACV - replacement cost minus depreciation) (most auto policies)
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32
Q

State Insurance Commissioner

A
  • Administers, interprets, and enforces insurance laws.
  • NAIC - National Association of Insurance Commissioners - set watch lists, issue model legislation - do not have regulatory authority
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33
Q

Determination of life insurance needs

A
  • Human Life Value approach: determine economic value of future earnings and subtract consumption of insured person
  • Needs approach: estimates cash needs less social security (black-out period between when kids reach 18 and retirement age). Based on goals such as retirement, education, etc.
  • Capitalized earnings approach: earnings ledd consumption and taxes adjusted for earnings/inflation
  • Benchmark 12-18 times gross pay
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34
Q

Annual Renewable Term insurance

A
  • Annual Renewable Term:
    • premium increases annually
    • fixed DB
    • can be converted to a permanent policy w/out evidence of insurability
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35
Q

Universal Life (options A and B and variable)

A
  • Premiums pay for administrative costs, commissions and CV
  • Flexibility in premiums, face value, cash value
  • cash value can be used to pay premiums
  • Option A: Flexible premium; Beneficiary receives CV or DB
  • Option B: DB vary with CV; Beneficiary receives CV and DB
  • Variable: Insured directs investment of CV
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36
Q

Whole Life (Individual Life Insurance Policies)

A
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37
Q

Whole Life Dividend Options

A
  • Cash
  • Paid-up additional
  • Increased cash value
  • Reduce premiums
  • One-year term (5th dividend)
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38
Q

Modified Endowment Contract

A
  • Pay too quickly into life insurance policy
  • Based on 7-pay test
  • If fails test, taxed on LIFO (interest first) basis
  • Taxed as ordinary income
  • 10% penalty if under 59 1/2
  • Rules have no effect on the policy unless insured is taking withdrawals
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39
Q

Taxation of Permanent Insurance

A
  • Dividends
    • if total dividends do not exceed premiums paid, not taxable (return of premium)
    • if do exceed premiums, that amount is taxable
  • If not a MEC, then taxed on a FIFO basis (basis first; If MEC, then taxed on a LIFO (interest first) basis
  • Basis withdrawals not taxable
  • Loans against CV not taxable
  • For all insurance, if beneficiary is estate, may be subject to estate tax
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40
Q

Tax implications of surrender

A
  • Lump sum - Amount in excess of premiums, taxable as ord income
  • Interest only - taxable as ord income
  • installments - interest is taxed as ord income
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41
Q

Life insurance premium taxation

A
  • premiums not deductible by individuals
  • group insurance premiums deductible (up to 50K in coverage - must pay tax on premiums that cover over 50K). Calculate inputed income.
  • group WHOLE LIFE premiums paid by employer are taxable
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42
Q

Life insurance policy provisions

A
  • Grace period usually 31-60 days - company will still pay out if death during grace period (minus premium due)
  • Incontestability - after 2 years of insurance, company can’t cancel policy if they discover material misrepresentation, omission, or concealment.
  • Misstatement of gender or age: DB adjusted for what premiums would have bought.
  • Assignment: transferring rights of policy to another party (absolute - final or collateral)
  • Suicide: coverage excluded within 1 or 2 years of inception
  • Reinstatement: sometimes can be reinstated w/out evidence of insurability
  • Policy loan provisions - If death occurs, loan amt plus accrued interest deducted from DB
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43
Q

Settlement options for life insurance

A
  • Lump sum payment
  • Interest only
  • Annuity payments
    • Fixed amount
    • Fixed period
    • Life income
    • Life income with period certain
    • Joint and last survivor income
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44
Q

Transfer for value taxation

A
  • DB become taxable beyond basis except:
    • transfer to the insured (if was a co. plan)
    • transfer to a business partner
    • transfer to a partnership
    • transfer to a corporation of which insured is a shareholder
    • transfer that results in a carryover basis from the transferor to the transferee
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45
Q

1035 Exchange

A
  • exchange from one non-MEC policy to another is not a taxable event unless it is an annuity (generally taxed) exchanged for life insurance (generally untaxed)
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46
Q

Taxation of viatical settlement

A
  • terminally ill person (die w/in 24 months) sells policy to another party, income not subject to tax.
  • Purchaser incurs tax liability to the extent the proceeds (DB) of the policy exceed the purchase price and other costs (premiums)
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47
Q

Own occupation vs. any occupation

A
  • own occupation: policy pays if you cannot perform the duties of your own occupation (expensive $$$)
  • any occupation: policy pays if you cannot perform the duties of any occupation (inexpensive)
  • split definition: pays for a fixed period of time using own occupation definitation and then uses any occupation definition.
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48
Q

Residual benefits of disbility

A

If insured goes back to work for reduced pay, pays the difference in salary.

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49
Q

Disability cost of living rider

A
  • Future increase option rider: permits insured to increase monthly benefit as the insured gets older.
  • Automatic increase rider: increases benefit by a set percentage every year
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50
Q

Taxation of disability payments

A
  • if premiums are paid with after-tax dollars, benefits are not taxed
  • if paid by employer with pre-tax dollars, benefits are taxed
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51
Q

Elimination period

A
  • length of time between disabling event and payments begin
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52
Q

Disability integration with SS

A

Disability payments are reduced by the amount of SS received. Lower premiums for this.

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53
Q

Disability benefit period and waiver of premium

A
  • short term: 2 years or less
  • long term: coverage until normal retirement age, death or for a specified period of time.
  • policy’s premium can be waived upon disability.
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54
Q

Disability desireable coverage

A
  • 60-70% of income if not taxed
  • work life expectancy (long-term)
  • elimination period - based on emergency fund
  • definition of disability - own occupation
  • renewability - non-cancelable or guaranteed renewable
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55
Q

Types of annuities

A
  • Immediate annuity: purchased with lump sum starts paying out immediately
  • Deferred annuity: payments begin at future dates
    • Flexible premium deferred annuity: pay more than once
    • Single premium: lump-sum
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56
Q

Fixed vs. Variable Annuity

A
  • fixed: single interest rate or guaranteed minimum rate; does not keep pace with inflation
  • variable: investable; no guaranteed rate of return
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57
Q

Annuity Payments Timing

A
  • Pure Life or Single Life Immediate Annuity: pays out for life; pays the most; no beneficiary (can’t leave to heirs)
  • Life Annuity with Guaranteed Min. Payments: payments continue for a minimum term, payable to beneficiary or until death if beyond term.
  • Installment Refund Annuity: Payments continue for a minimum term and if at death pay out less than paid in, give difference to benefiary
  • Joint and Survivor Annuity: Payments are lower. Payments continue until death of 2nd annuitant.
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58
Q

Annuity Exclusion/Inclusion Ratio

A
  • Exclusion ratio = taxable portion of annuity payments

Monthly payments x 12 months x life expectancy = total payments

Basis/Total Payments = exclusion ratio

Exclusion ratio x monthly payments = amount excluded from income

Payment - amount excluded from income = taxable amount s ordinary income

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59
Q

Taxation of annuities

A
  • Withdrawals from annuities are taxed LIFO
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60
Q

Patient Protection and Affordable Care Act

A
  • requires most citizens/legal residents to have health insurance
  • large employers must offer coverage
  • small employers incentivized to offer
  • prohibits lifetime limits and annual limits
  • no pre-existing condition clause
  • plans categorized from bronze to platinum
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61
Q

Stop Loss vs. Maximum Out of Pocket

A
  • Stop Loss:
    • Maximum out of pocket in addition to the deductible
    • Each family member must meet the deductible up to a max number of people
  • Maximum out of pocket:
    • includes deductible in max out of pocket expenses
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62
Q

Indemnity (Traditional) Health Insurance

A

Reimbursement for expenses

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63
Q

HMO

A

Health Maintenance Organization

  • Group of physicians
  • Referrals necessary
  • Only network coverage
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64
Q

PPO

A

Preferred Provider Organization

  • Larger provider pool than HMO
  • Network doctors but can go out of network for more $
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65
Q

POS

A

Point of Service Plan

  • Encourage primary care selection
  • Has network but can go out of network with higher ded., copayments, coinsurance
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66
Q

Health Insurance Policy Provisions

A
  • Incontestability clause: after policy has been in force for an amount of time, company can’t terminate contract
  • Grace Period: Usually 31 days
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67
Q

Taxation of Health Insurance

A
  • Benefits are tax free
  • Employer-paid plans not taxed
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68
Q

Coordination of benefits

A
  • prohibits collecting more than 100% of actual expenses
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69
Q

COBRA

A

Consolidated Omnibus Budget Reconciliation Act

  • Employer may charge an additional 2% for administrative costs
  • Eligibility:
    • Death of covered employee
    • Voluntary or involuntary termination
    • Separation from spouse
    • Medicare eligibility of covered employee
    • Dependent child no longer eligible for employee-paid
    • Do not have to offer coverage in the event of gross misconduct
  • Company with at least 20 employees must offer COBRA
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70
Q

COBRA duration

A

COBRA lasts:

  • 18 months for reduction in hours or normal termination
  • 36 months for death, divorce, Medicare eligibility
  • 29 months for SS definition of disabled
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71
Q

HSA

A

Health Savings Account

  • LTC, COBRA, Medicare (65+) and premiums paid during unemployment are qualified med expenses
  • Must be a part of High Deductible Plan
  • Contributions pre-tax, use $ for medical expenses
  • Earnings tax-deferred
  • Penalty: 20% before age 65 and taxed as ordinary income
  • Can be rolled over 1x per year
  • Must get prescription for OTC drugs
  • Can be used for dental and orthodontics
  • not cosmetic surgery
  • 60 days for trustee to trustee transfer
  • Can be transferred to beneficiary upon death - if not spouse, subject to tax but not penalty
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72
Q

FSA

A

Flexible Spending Account

  • Use it or lose it
  • Can be used for “optional” medical expenses
  • child/dependent care
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73
Q

Long Term Care Insurance

A
  • Covers broad range of levels of care including custodial care - Assistance with eating, dressing, bathing, etc - which Medicare does not cover
  • Benefits can be provided for fixed period of time or for a fixed amount of money
  • Premiums tax deductible and benefits may be tax deductible as long as policy is “qualified” and subject to 10% medical cost hurdle (max deductions apply)
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74
Q

Long Term Care Insurance Eligibility for Benefits

A

Eligibility:

  • Substantial cognitive impairment (behavior threatens own/others health and safety
  • Unable to perform at least 2 of 6 activities of daily living for at least 90 days:
    • Eating
    • Bathing
    • Dressing
    • Transferring from bed to chair
    • Using the toilet
    • Continence
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75
Q

Homeowners Insurance Perils

A
  • Basic named perils: 12
  • Broad perils: 18
  • Open perils: all perils covered except for specific exclusions
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76
Q

HO Insurance Exclusions

A
  • Movement of ground
  • Ordinance or law
  • Damage from water
  • War or nuclear hazard
  • Power failure
  • Intentional act
  • Neglect (e.g. termites)
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77
Q

Section 1 Coverages

A
  • A: Dwelling: coverage should be equal to 80% of replacement cost
    • Coinsurance - amt. purchased/coinsurance req. x amount of loss
  • B: Other structures:
    • out buildings
    • limit usually 10% of the amount of Coverage A
    • Not covered if used for business
  • C: Personal Property
    • standard coverage is ACV; endorse for replacement value
    • jewelry limited to $1500
  • D: Loss of use
    • combination of add’l living expenses and loss of rental income
    • limit is 30% of coverage A
78
Q

Section II Coverages

A
  • E: Personal Liability:
    • Based on a legal liability to pay
    • Minimum amt of coverage is 100K
  • F: Medical payments to others
    • Not based on liability or fault
    • Exclusions:
      • Injury sustained by insured or family
      • Sustained by employee
      • Results from nuclear radiation
79
Q

General Provisions of HO Insurance

A
  • Cannot be assigned to another without written consent
  • Subrogation
  • Policy void if willful misrepresentation or concealment
80
Q

HO 3

A
  • Dwelling - open peril basis
  • Personal property named peril, covered at 50%
  • Can add endorsement for property at open peril
81
Q

HO 5

A

Comprehensive Form

  • Dwelling - open peril
  • Propert - open peril
82
Q

HO 4

A

Contents Broad Form (renter) - RENT

  • Personal property Broad perils
  • loss of use 20% contents
  • Coverage for improvements tenant made to property (limited to 10% of property)
83
Q

HO 6

A

Unit owners policy - CONDOS

  • Broad perils
  • coverage for alterations and additions
  • loss of use is 40% of personal property amount
  • Endorse for Open Perils
  • Endorse for loss assessment coverage
84
Q

HO 8

A

Historical properties - HISTORIC

  • covers repairs rather than replacement
  • basic perils
  • theft only covered at $1,000
85
Q

HO insurance duties after loss

A
  • inform insurance company
  • protect property from further damage
  • inventory of loss
  • file written proof of loss
86
Q

HO 2

A
  • Dwelling and personal property, broad perils
87
Q

Flood Insurance

A
  • National Flood Insurance Program provides subsidized flood insurance to property owners in qualified areas
  • Flood insurance required for those in flood zone
88
Q

Inland Marine

A
  • Scheduled property
  • at agreed upon value
89
Q

Insurance on watercraft

A
  • ACV (depreciated value)
  • covers anything permanently attached to the watercraft
90
Q

Personal Auto Policy

A
  • Part A: Liability coverage
  • Part B: Medical payments
  • Part C: Uninsured motorist
  • Part D: Damage to Auto
  • Part E: Duties after accident
  • Part F: General provision
91
Q

Your covered Auto

A
  • Any vehicle shown in policy declarations
  • Must add new vehicle within 30 days
92
Q

Part A: Liability Coverage

A
  • Covered persons include you, family member, any person using car with permission
  • Split limits: Bodily damage per person/Bodily damage per incidents/property damage
  • State law minimum increase automatically when crossing states
  • Insurance on auto primary; then insurance on person
93
Q

Part B: Medical Coverage

A
  • Limited on a per person, per occurance basis (usually 5K)
  • Provides coverage when struck as pedestrian
  • Exclusions: Public livery, racing, and auto used without permissions
94
Q

Part C: Uninsured Motorist

A
  • pays what an under-insured or uninsured should have paid
  • underinsured must be at fault
  • cannot sue own insurance company for underpayment
  • exclusions: public livery, regular use of nonowned vehicle, auto used without permission, auto used in insureds’ business
95
Q

Part D: Coverage to Damage to your auto

A
  • Provides direct damage coverage on your covered auto
  • Collision: protects accidents involving another car, running off the road, into a tree, etc.
  • Comprehensive (also Other-than-collision): falling objects, fire, theft, explosion, earthquake, windstorm, etc. Contact with bird/other animal only covered by comprehensive
  • Insurance company can pay for repairs or give cash
  • Exclusions: Public livery, regular use of nonowned vehicle, business, most electronic equipment.
96
Q

Part E: Dutied after an accident or loss

A
  • Notify the insurer
  • File a proof of loss
  • cooperate with insurer in the investigation
  • must file police report if theft or uninsured motorist
97
Q

Part F: General Provisions

A
  • Only provides coverage in US, Canada, PR but not Mexico
  • Notify insurer of new car within 30 days of purchase
98
Q

Torts

A
  • cover intentional acts or accidents:
  • Intentional tort: libel, slander, assault
  • Strict and absolute liability
    • strict liability: allows for defense
    • absolute: no defense (e.g. worker’s comp)
  • Negilgence: prudent man standard
  • Breach of contract
  • Crimes
  • Liability insurance does not cover breach or crimes.
99
Q

Negligence (contributory vs. comparative)

A
  • failure to act as a prudent man
  • contributory: if injured persons negligent actions contributed to loss, cannot recover
  • comparative: if injured persons negligent actions contributed to loss, can recover a portion of the loss from the other negligent party
100
Q

Res Ipsa Loquitor

A
  • The act speaks for itself
  • plane crash implies negligence
101
Q

Vicarious liability

A
  • Reponsibility for the acts of others (e.g. bar tenders, parents responsible for children)
102
Q

PLUP

A
  • Personal Liability Umbrella Policy
  • usually provides legal defense for the insured in the event of law suit
  • pays the costs up to the face of the policy that result in liability
  • requires higher liability limits on underlying auto and homeowners policies (which are exhausted before umbrella)
  • includes insured and family
  • typical $1-3M
  • Exclusions: business, intentional acts, if it occurs on uninsured located owned by insured
103
Q

Errors and Omissions Insurance

A
  • malpratice insurance for accountants, lawyers, engineers, etc.
104
Q

FICA

A
  • Federal Insurance Contributions Act
  • 6.2% OASDI employee and employer up to 118,500
  • 1.45% of total compensation (HI)
  • additional Medicare payments for higher income (over 200K single filer, etc)
105
Q

Qualifying for SS benefits

A
  • Fully insured: paid into system for 40 quarters (1 quarter = $1,220 of earnings up to a max of 4 quarters per year)
  • Currently insured:
    • 6 quarters of coverage out of the previous 13 quarters
    • limited benefits only available to select survivers
    • no retirement benefits for currently insured
106
Q

SS Beneficiaries

A
  • worker
  • spouse of worker
  • children of worker
  • dependent parents
  • divorced spouses
107
Q

Full Retirement age

A
  • full retirement is 65 years if born before 1938
  • full retirement is 67 if born in 1960 or after
  • increased benefits if retire beyond retirement age
108
Q

PIA

A
  • Primary Insurance Amount (calculated based o Average Indexed Monthly Earnings)
  • Worker receives PIA
  • Spouse of retired or disabled worker who is
    • 62 years old
    • is caring for a child who is under age 16 or disabled
  • Divorced spouse of a worker entitled to benefits who is:
    • 62 years old
    • was married to worker for at least 10 years
  • Surviving spouse of a deceased insured worker if the widow(er) is over 60.
109
Q

Early Retirement (5/9ths, 5/12ths Rule)

A

Earliest can collect is age 62 but is a permanently reduced benefit:

Calculate number of months early

5/9 of first 36 months (20%) plus /12 of additional months (e.g. if 12, then 5%). PIA is reduced by that amount.

e.g. if retire at age 62 but full retirement is at 66.

That’s 48 months

5/9 * 36= 20

5/12 * 12= 5

subract 25% from PIA

110
Q

Delayed Retirement

A
  • Increases PIA by 3-8% for each year of delayed retirement (based on normal retirement age)
111
Q

Retirement Earnings Limitations Test

A
  • reduced SSI if start collecting prior to full retirement if still working. Not a permanent reduction.
  • if earn over $15,720 while collecting benefits, SS reduced by 50% over that amount.
  • at normal retirement age, 33% reduction in PIA
  • after full retirement, no reduction
  • earnings do not include pensions, investment income, capital gains
112
Q

Taxation of Social Security

A
  • up to 85% of benefits may be taxable
113
Q

Conditional (insurance)

A

Conditional: In order to keep the insurance policy in force, insured must pay premium

114
Q

Representation

A

Principle of utmost good faith - don’t lie

115
Q

Level Term

A

Level premium

116
Q

Decreasing Term Insurance

A

Decreasing term:

level premiums
DB decreases

117
Q

Social Security Disability

A
  • Fully insured: 40 quarters, with at least 20 quarters in the last 40 quarters (at age 31 or over- different quarters for younger ages)
  • Severe physical and mental impairment that prevents substantial work
  • Expected to last at least 12 months or result in death
118
Q

Social Security Death Benefit

A

$255 for surviving spouse or minor child (if no spouse)

119
Q

Social Security Survivors’ Benefits

A

Subject to maximum family benefit

Widow or widower:

  • 60 or older
  • over 50 and disabled
  • caring for a child under age 16
  • caring for a child who was disabled before 22

Unmarried child

  • under 18
  • under 19 and in high school
  • 18 or older if disabled before 22

Dependent parents

120
Q

Medicare Eligibility

A
  • only 65 or older
  • disabled
121
Q

Medicare Part A

A
  • Hospital insurance
  • Premiums for some people - mostly free
  • Deductibles per benefit period (time it takes from illness to end of treatment)
  • Coinsurance depending on number of days
    • Skills nursing facility coinsurance
  • NO CUSTODIAL NURSING HOME
122
Q

Medicare Part B

A
  • Premiums based on income
  • covers 80% of:
    • doctors
    • diagnostics
    • outpatient
    • medical equipment
  • Does not cover:
    • teeth, ears, eyes, cosmetic surgery
123
Q

Medicare Part D

A
  • Monthly premium and percentage of perscription cost
  • Donut hole: part of medicare part D where medicare pays nothing
124
Q

SS Benefits Divorce

A
  • Benefits cease at divorce unless married for 10+ years and individual is 62 or older
  • Widow and widower benefits cease at remarriage unless 60 or older
125
Q

Void vs. Voidable Insurance Contract

A
  • A void contract was never valid
  • A voidable contract is allowed to be cancelled by one of the parties.
126
Q

Parol Evidence Rule

A
  • Written contract supercedes all verbal contracts
127
Q

Reformation

A

Contract is revised to express the original intent of all parties

128
Q

Rescission

A

Deems a contract void from inception

129
Q

General Agent

A

Represents one insurer

130
Q

Independent Agent

A

Represents policy owner

131
Q

Insurance Contract Conditions

A

Details the duties and rights of insured and insurer

132
Q

Insurance Contract - Declarations

A

Identifies the name of the insured, the property, amount of coverage, amount of premium, policy term and inception/termination dates

133
Q

Insurance Contract Exclusions

A

Identifies excluded perils (earth movement) or excluded costs (private room, etc) or excluded items (jewelry)

134
Q

Insurance contract riders/endorsements

A
  • Written additions to insurance contract
  • Take precedence over conflicting terms in policy
135
Q

Insuranc company regulation

A
  • Regulated at the state level.
  • Legislative: provides for licensing of agents and enacts laws and requirements
  • Judicial: rules on constitutionality of laws passed by legislative branch and render decidsion re: policy terms
  • Executive or State Insurance Commissioner: Administers, interprets, and enforces laws - DOES NOT MAKE LAWS.
136
Q

Goals of State Insurance Regulation

A
  • Protect the insured
  • Maintain and promote competition
  • Maintain solvency of insurers
137
Q

Actual Cash Value

A
  • FMV - depreciation (replacement cost for new item less depreciation)
  • Almost all auto policies are ACV
138
Q

Agreed-upon value

A
  • Used to value art and antiques
  • Value determined by both insurer and insured.
139
Q

National Association of Insurance Commissioners

A
  • Provides a watch list of insurance companies based upon ratio financial analysis
  • NO regulatory power over insurance industry
  • Issues “model regulation” that state legislatures may or may not adopt.
  • NAIC works to see that information is adequately communicated as circumstances arise. The organization also sees that recommendations of action serve as the basis for decision-making by setting precedents for states to draw from voluntarily.
  • The NAIC also provides recognition though accreditation of state insurance offices.
140
Q

6 Steps of Risk Management

A
  • Determine the objectives of the risk mgmt program
  • Identify the risks to which client is exposed
  • Evaluate the indentified risks for probability/loss amount
  • Determine alternatives for managing risk
  • Implement the program
  • Evaluate, monitor and review
141
Q

Insurance Agent Implied Authority

A

Based on letterhead, business cards, etc.

142
Q

Term Life Waiver of Premium

A

Premium does not have to be paid during periods of disability.

143
Q

Decreasing Term

A
  • Premiums are level but DB decreases over time
  • Most appropriate to pay off mortgage
144
Q

Current Assumption Whole Life (CAWL)

A
  • Insurer uses new money rates and new mortality tables to establish premium.
  • If interest rates are too high and premiums too low, premiums can be adjusted once (usually at 5-year mark)
145
Q

First-to-Die Policy

A
  • Pays out when first person dies
  • Life expectancy is lower than for 2 single-life policies.
146
Q

Whole Life Dividend Options

A
  • Participating - Pays dividends - CRAP-O
    • Cash
    • Reduce premiums
    • Accumulate interest
    • Paid-up additions - purchases add’l insurance regardless of health or occupations
    • One-year term - 5th dividend - adds term insurance.
  • Non-participating - Does not pay dividends
147
Q

Whole Life non-forfeiture options

A
  • Cash Surrender Value - Cash value less surrender charges
  • Reduced paid-up insurance - Lower death benefit; no additional premiums
  • Extended term insurance - Term insurance for a specified amount of time with original death benefit
  • (death benefit = face value)
148
Q

Universal Life A vs. B

A
  • All have flexible premium, adjustable DB.
  • A: Total DB is level; Specified insurance amount decreases as cash value increases
  • B: Increasing DB as cash vaue increases = specified amount of insurance PLUS cash value.
149
Q

Variable Universal Life

A
  • Investment option in the plan
  • Held in separate account - not treated as asset of the insurance company.
150
Q

Direct Recognition for LI

A
  • Dividends and interest are reduced by outstanding loans on the policy
151
Q

Immediate annuity

A
  • Paid with lump-sum and payments being immediately
152
Q

Deferred Annuity

A
  • Payments begin at a future date.
  • Can be a lump sum or periodic payments
153
Q

Flexible Payments Deferred Annuity (FPDA)

A
  • Premiums are flexible and payments depend on how much was paid
154
Q

Single Premium Deferred Annuity (SPDA)

A
  • Lump sum payment of premium
  • Earnings accumulate tax free until distributed
  • Proceeds from a life insurance policy can be used to buy
155
Q

Fixed Annuity

A
  • Has a fixed interest rate
156
Q

Variable Annuity

A
  • No guaranteed rate of return - can be invested in stocks, bonds, etc.
  • Used to keep pace with inflation.
157
Q

Pure Life Annuity

A
  • Payments are made during life and stop at death - risk is receiving fewer payments that paid for annuity.
158
Q

Life Annuity w/Guaranteed min payments

A
  • Payments continue for a specified term and will be paid to bene as long as term is not exceeded during life of annuitant.
159
Q

Installment Refund Annuity

A
  • If policy payouts are less than total premiums paid, bene will receive payout equal to difference.
160
Q

Joint and Survivor Annuity

A
  • Payouts over lifetime of 2 annuitants.
  • Generally lower payments than pure life.
161
Q

Pre-1982 Annuity Withdrawal Taxation

A

FIFO

162
Q

Post-1982 Annuity Withdrawal Taxation

A

LIFO

163
Q

Major Medical Policy - Stop Loss

A
  • Deductible is in addition to stop loss amount
164
Q

Group Major Medical Policy - Stop Loss

A
  • Stop loss includes deductible
165
Q

HSA Catch-up

A

$1000 extra for age 55 and over

166
Q

Noncancellable Health Policy

A
  • Can’t be canceled by insurer for specified number of years or specific age
  • Cannot raise premiums
167
Q

Guaranteed Renewable Health Insurance Policy

A
  • Insured has right to renew for specified period of time
  • Premiums can increase as long as they are increased for entire class of insured’s.
  • All policies must be guaranteed renewable
168
Q

Basic Perils

A

HO-1

  1. Windstorm
  2. Explosion
  3. Aircraft
  4. Theft
  5. Hail
  6. Riot
  7. Fire
  8. Vandalism
  9. Vehicles
  10. Volcanos
169
Q

Broad Perils

A

HO-2: Basic + Broad

  1. Sudden bursting of appliances
  2. Weight of ice/snow/sleet
  3. Accidental overflow of water
  4. Damage from electrical current
  5. Freezing of system or appliance
170
Q

Open Perils Exclusion

A
  1. Movement of ground
  2. Ordinance or law
  3. War/Nuclear hazard
  4. Water - Flood or Sewer
  5. Power Failure
  6. Intentional act of the insured
  7. Neglect
171
Q

Auto Policy Exclusions

A
  • Motorcycle
  • Regular use by relative
  • Racing competition
  • Company cars
  • Cars used primarily for business
172
Q

Social Security Wage Base

A

6.2% of up to $118,500

173
Q

Medicare Tax

A
  • 1.45% on wages up to threshold (250K MFJ)
  • .9% after threshold
174
Q

Late retirement increase

A
  • Up to 8% annually until age 70
175
Q

SS survivorship benefits always covered

A
  • Child under 18
  • Caretaker of child under 16
176
Q

SS Beneficiaries

A
  • Fully insured worker age 62+
  • Disabled insured worker until age 65
  • Spouse of retired/disabled worker who is at least 62 OR caring for child under 16.
  • Divorced spouse of retired/disabled worker if age 62+, was married for 10 yrs and did not remarry by age 60.
177
Q

Medicare Part B - Does not cover

A
  • Dental care/dentures
  • Cosmetic surgery
  • Hearing aids
  • Eye exams
178
Q

Insurance Rating Companies

A
  • AM Best
  • Standard and Poors
  • Moody’s investor services
179
Q

Contingent Business Interruption Insurance

A

If a business insured does not own has an effect on business operations for insured

180
Q

Modified Any Occupation Definition

A

the insured is unable to perform the duties pertaining to any gainful occupation for which they are suited by education, experience, or training

181
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 are reached.

182
Q

Surrender of Insurance Policy Taxation

A

Gain from cash surrender value less basis less dividends is taxed as OI

183
Q

Business Interruption Insurance

A

Covers indemnity for businesses during the period where they are rebuilding and restoring after covered losses have forced a halt of business as usual.

184
Q

Dynamic Risk

A

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

185
Q

Direct recognition

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

186
Q

Group Life Coverage

A
  • Generally group size is 10 or more unless specific situations
  • Coverage amounts may be (and many times are) based upon salary level, not job classification and length of service.
  • Payouts are almost always made in lump sum payment, unless otherwise specifically requested by the beneficiary
187
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.

188
Q

Guaranteed Purchase Option

A

offers a guarantee that the insured canpurchase additional life insurance—without evidence of insurability—when it is most needed, such as at marriage, or the birth or adoption of a child.

189
Q

Living Benefits Rider

A

entitles the policyowner to an early (accelerated) payout of policy death benefits,1 if the insured is diagnosed to have a life expectancy of 12 months or less.

190
Q

Chronically Ill Definition

A

unable to perform 2 of 6 ADL’s

191
Q

Homeowner’s bodily injury

A

Does not cover injury to the insured

192
Q
A

CFP (8 decks)

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