Insurance Wrong Answer Stack Flashcards
Risk, Peril, Hazard MT:
Risk (4) = condition possibility of loss(4)
Peril (5) = cause (5) of loss, the event (5)
Hazard (6) = condition that may create (6) or increase chance (6) of loss
Methods to Avoid / Reduce Loss:
Avoidance
Diversification
Transfer (Insurance)
Retention (9) - Voluntary (9) recognized that risk exists and assume loss. Use deductible(10)/coinsurance (11)
MT for retention 9,10,11
Broad form Perils
Rupture of a system
Artificially generated electricity
Falling Objects
Freezing of Plumbing
BASIC+RAFF
MT: Think a Broad in the Royal Air Force F
Homeowners Policy Exclusions Include:
OPEN WIFF
Ordinance/law
Power failure
Earthquake
Neglect
Nuclear hazard
War
Intentional Loss
Flood
MT: Insurance will OPEN (handed) WIFF you in the face
What are the elements of insurable risk?
- must be measurable in terms of time and $
- must be fortuitous
-loss cannot be catastrophic to the insurance company - must be large numbers of HOMOGENOUS exposure units to make losses predictable.
Fortuitous - means happening by accident or chance rather than design
Homogenous - of the same, alike
What type of company is most likely to use stop loss coverage to partially self insurance it’s employees medical insurance program?
Companies with as few as 100 employees.
In an insurance contract which terms refers to the legally binding arrangement that explains the basic promise of insurance company?
The Insuring Agreements
Under the insuring agreements the insurance company promises to pay for the loss if the loss should result from covered perils.
Owning a home on the water is an example of a ….?
Hazard
MT: Hazard = Hurricane
In an insurance contract where are factual statements identifying the specific person, property, or activity being insured?
the DECLARATIONS
the declarations also provide descriptive info about the insurance being provided.
MT: WHO signed the DECLARATION of Independence
What information should be obtained to make the best decision on comparing life insurance?
- AM BEST Report
- Info from Broker
- COST/BENEFIT Analysis
What’s true of participating policies that are written by a participating insurance company?
They overcharge premiums intentionally.
They don’t ALWAYS pay dividends. (Always and Nevers are wrong answers)
If they don’t make money they don’t pay a dividend that year
What information is used for underwriting?
- Info from Broker
- Physical Exam
- Investigation
What is Capital Retention Method of Life Insurance Needs?
EX:
Income needs = $65,000
Inflation = 6%
$65,000/6% = $1,08,333 + FIRST YEAR SPENDING
= $1,148,333
What is most important for selecting insurer?
- Policy Types offered
- AM BEST Ratings
BASIC PERILS MT
Fathers VW Vehicle
Fire
Aircraft
Theft
Hail
Explosion
Riot
Vandalism
Windstorm
Homeowners section II coverage includes?
- Personal Liability
- Medical payments to others
MT: II messed up x2
If there is a gap in umbrella policy how is it paid?
1st policy pays to their limit X
Client pays in between (deficit between coverage and what’s needed for the umbrella claim)
Umbrella pays above the floor coverage needed (details in the policy, example umbrella pays $500K-$1M but you must have underlying insurance to $500K. If you only have $300K then first insurance company pays $300K then you pay $200K gap then Umbrella pays the $500K between $500,000- $1M)
Liability for Board of Directors on Condo Association?
- you can be sued!
REQUIRE the condo association to purchase DIRECTORS AND OFFICERS coverage.
In conjunction with major medical insurance policy what does BREAK POINT mean?
In major med the breakpoint is the dollar amount of the claim at which insurer pays 100% of eligible expenses.
How long does COBRA election period last?
60 days after actual notice of event of the qualified beneficiary to the plan administrator.
If the hospital has to buy blood for Medicare A/B Patient the first ______ units in a calendar year has to be patient paid or donated.
3 UNITS
What is the penalty for late sign up for Medicare Part D?
1% for each month late
example:
Base Premium $35 p month
sign up 48 months late
$35 x 48% = $16.80 penalty per month
Base + Penalty is the new rate!
Read Q question can ask how much they will pay or what is the penalty.
Skilled Nursing and Medicare
Medicare pays first 20 days in FULL
Patient pays $200 per day days 21-100 (Medicare covers amount above that)
101 days plus patient pays all
Medicare doesn’t cover LTC when there is no hospital stay/not expected to improve but would COULD cover LTC?
LTC could be paid by Medicaid if he satisfies the means test.
If disability premium cost is a problem what can you do?
- increase elimination period
- don’t buy COLA rider
- purchase guaranteed renewable policy. (cheaper than non cancelable)
What disability policy provision is least beneficial to your your clients?
ANY occupation
If you want your death benefit to increase each year what should you select?
- paid up additions
- one year term (pays DB equivalent to the guaranteed cash value in policy)
Non- Forfeiture Options
- Cash Options
- Reduced Paid Up
- Paid Up term ins/extended term
Extended Term (Paid up Term) is a _____
Non Forfeiture Option that maintains original death benefit for limited # of years. (Fixed period of time)
Non-Forfeiture option that could impose delay clause?
Cash Surrender Value
(6 month delay clause, this is to prevent a run on the banks, & why CV life is not considered liquid/cash equivellent)
If you want to stop paying premiums on your whole life poliy what are your options?
- cash it in
- reduced paid up whole life
- paid up term (extended term)
- APL to cover premium
- annuitize the cash value
Universal Life Provides Guaranteed Minimum ______
INTEREST RATE
NOT guaranteed cash value
Insurance Illustrations that are compliant with NAIC Model Law must include ______?
- Brokers name
- Insured Names
- The Death Benefit
TEST TIP
Make sur you pick answers that answer the question that THEY ARE ASKING!!!
EX: least important feature on a policy
I picked settlement option but the answer was insurance RATING because it is NOT a feature
When will proceeds from life insurance be subject to income tax?
When sold to a viatical company
(I chose gifting to daughter thinking of transfer for value but gifts aren’t subject to income tax DB would be but proceeds wouldn’t be cashed out at time of gift)
It is NOT a MEC if it happened before ______?
1988!!!
Watch out one Q had 1986
Entity Purchase Buy Sell
- premiums are not deductible as a business expense
- this keeps the death benefit tax free
- deceased shareholders stock gets a STEP UP in basis (think step up to heaven)
If any owner of a life insurance policy wants to buy her own policy what are the tax consequences?
NO GAIN if proceeds of sale do NOT exceed basis.
If there is a gain then it is subject to ORDINARY INCOME tax.
Disability/Life Buy Out
How much income is taxable to the owner if he becomes totally 1. disabled or 2. to estate at death?
Basis in business is $100,000 and Buy Out is $1,000,000
Disabled = $900K is taxable
Death $0 taxable
When annuity owner is entity and not a natural person the income is taxable at _________ rates.
Ordinary Income Rates
(Annuities don’t declare capital gains so no cap gains rates)
What is the disadvantage of single life immediate annuities?
FIXED PAYMENTS
(I chose $0 value to estate but that is an advantage in estate planning….)
What provides payments at least equal to purchase price of annuity?
An installment refund annuity or a refund annuity
If instead of paying employee a bonus directly the employer deposits the bonus into an annuity contract owned by the employee….
the annuity payments is DEDUCTIBLE
In a distribution (or surrender) of/from an annuity the individuals investment in the contract is treated as…
tax free return of capital
until distributions begin earnings within an annuity grow tax deferred.
Which type of insurance policies do NOT offer a conversion feature?
Short Term and Long Term Disability
(Life & Health in group policies DO provide conversion option)
Employer ________ deduct premiums it pays into group life insurance (even if the plan discriminates)
MAY DEDUCT
Non Key employees can exclude the taxable cost of the 1st _______ of life insurance?
$50,000
Key employees in discriminatory plans can exclude _____ of life insurance coverage.
$0
FSA:
Dependent care is limited to $5000 not by the number of kids. You must use by 12/31.
Healthcare is limited to $3,050 and must be spent by March 15th or it is forfeited. (2 1/2 months after plan year end)
What is the FSA Cap on Healthcare and Dependent Care?
Healthcare = $3,050
Dependent Care = $5,000
What is not allowed to be paid from FSA?
NO Health insurance premiums
NO LTC premiums
NO Cosmetic items or surgery
What can an FSA pay?
- child/dependent care (up to $5,000)
(this includes adult day care for elderly parents living with participant.)
