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My CFP Flashcards > life, health, and disability insurance > Flashcards

life, health, and disability insurance Flashcards

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1
Q

needs approach

A

evaluates the income replacement and lumpsum needs of survivors in the event of an income producer’s untimely death

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2
Q

human life value approach

A

uses projected future earnings less self-maintenance costs as the basis for measuring the life insurance needs

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3
Q

annual renewable term

A

ART premiums increase annually

no value value

death benefit is fixed at the face amount of the policy

advantages: pure death benefit that is inexpensive, insured receives a maximum death benefit for each dollar in premiums, can be converted to a permanent policy without proving insurability

disadvantages: may become too costly at older ages, no savings component, premiums increase each year

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4
Q

level term

A

premiums are level for a period of time

no cash value

death benefit is fixed at the face amount of the policy

advantages: premiums remain level, provides a pure death benefit protection that is inexpensive, receive a max death benefit for each dollar in premiums, can be converted to a permanent policy without proving insurability

disadvantages: insured overpays premiums initially, no savings component

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5
Q

decreasing term

A

premiums are level

no cash value

death benefit decreases over the term of the policy (appropriate for the purpose of paying down a mortgage)

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6
Q

when is appropriate to use term life policies?

A

to pay off temporary needs such as education funding, paying off debts, or to cover expenses during the grieving process

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7
Q

advantages and disadvantages to whole life insurance/permanent life insurance

A

advantages: provide tax-deferred growth of cash value, provides permanent protection until age 120

disadvantages: premiums are expensive, there is no flexibility with the premium payments, cash value grows gradually, insured may not be able to purchase as much protection

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8
Q

ordinary life

A

insured pays premiums until age 120 or death

cash value increases to face value at age 120

death benefit is level throughout the term of the policy

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9
Q

limited pay life

A

premiums are higher than ordinary life because the insured only pays the premiums until a certain age

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10
Q

variable life

A

cash value is invested in stock, bond, and money market mutual funds aka there is an opportunity for higher returns on cash value exists

death benefit and cash value fluctuate based on investment performance

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11
Q

current assumption whole life

A

insurer uses new money rates and new mortality rates to establish premiums

in the event that interest rates turn out to be too high and premiums too low, the insurer reserves the right to adjust the premium once, usually at the 5 year mark

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12
Q

appropriate uses of whole life insurance

A

anyone with lifetime or permanent needs
estate planning purposes to provide liquidity to pay transfer taxes
insured has a need for investment like performance/returns

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13
Q

nonparticipating

A

when the whole life policy does not pay dividends

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14
Q

participating

A

when the whole life policy DOES pay dividends

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15
Q

what are the different dividend options for whole life insurance?

A

cash - clients receive the money and can use it or invest it

accumulate interest - company invests the dividends and they are tax free up to the client’s basis in the policy

reduce premiums - decreases the out of pocket expense for premiums

paid up additions - purchases additional insurance each year

one year term - adds term insurance each year to the policy face amount qual to cash value of the policy

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16
Q

what are the nonforfeiture options for life insurance

A

cash surrender value = insured receives the accumulated cash value minus surrender charges

reduced paid-up insurance = insured receives the cash value in the form of a paid-up policy with a smaller face amount

extended term insurance = insured receives a cash value in the form of a paid up policy for a specified duration, with the same face amount as the original policy

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17
Q

universal life insurance

A

insured may adjust the premiums paid, face value of the policy, and cash value

insured does not direct the investment portion of the cash value

cash value can be used to actually pay the policy premiums

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18
Q

universal life A

A

a flexible premium, adjustable death benefit, unbundled life insurance contract

if the cash value gets high enough, the death benefit will increase

normally, the amount of insurance purchased declines as the cash value rises, keeping the total death benefit level

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19
Q

universal life B

A

same as Universal Life A BUT the death benefits vary directly with the cash values

more expensive than life A because the death benefit is equal to a specified amount of insurance plus the cash value and the total death benefit will typically rise

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20
Q

variable universal life

A

product with investment options

no minimum guaranteed rate of return or interest

cash value is invested in a separate account, not the insurer’s general account

cash value is not guaranteed

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21
Q

non direct recognition program

A

does not adjust the dividends paid on a policy when there is an outstanding loan against the cash value of a policy

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22
Q

direct recognition program

A

dividends are reduced by any outstanding loan against the policy

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23
Q

group term insurance

A

premiums for the first 50k in coverage is tax free
premiums paid by employer are tax deductible
premiums paid by the employee are with after tax dollars

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24
Q

group whole life insurance

A

allows employees to accumulate savings for retirement through the cash value of a policy

premiums paid by an employer are taxable income to the employee

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25
Q

a policy is a MEC aka modified endowment contract when….

A

it fails the 7 Pay Test aka if the cumulative premiums paid exceed the premiums due for the time period being considered

withdrawals or loans are taxed on a LIFO basis

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26
Q

does exchanging life insurance to life insurance create a taxable event?

A

NO

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27
Q

does exchanging life insurance to an annuity create a taxable event?

A

no tax

28
Q

does exchanging an annuity to life insurance create a taxable event?

A

YES

29
Q

does exchanging an annuity to an annuity create a taxable event?

A

NO

30
Q

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does hospital expenses cover?

A

covers expenses associated with hospitalization such as room and board charges, but it does not cover physician fees

31
Q

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does surgical expenses cover?

A

covers surgeon fees whether in a hospital or outside of a hospital

32
Q

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does physician’s expenses cover?

A

covers all nonsurgical physician expenses

33
Q

health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does major medical cover?

A

covers hospitalization, physician, and surgeon fees, physical therapy, and prescription drugs

eye exams and dental care are excluded from coverage

usually has a 80/20 coinsurance

each family member must satisfy a deductible

coinsurance portion also applies to each family member

34
Q

health maintenance organizations (HMOs)

A

delivers comprehensive health care in return for a premium

care is managed by a primary care physician who determines what care is received

aka GATEKEEPER

disadvantage = no coverage “outside” of the HMO

35
Q

preferred provider organizations (PPO)

A

network of health care providers with whom an employer or insurance company contracts

provider offers a discount on services

insured receives a high rate of reimbursement when using providers within the organization

insured may seek care elsewhere but will suffer a penalty of increased deductibles and coinsurance

PPO allows the option to choose a provider outside of the network

36
Q

Managed Care aka Primary Care Physician (PCP)

A

insured accesses care via a primary care physician who provides services or refers a specialist

physicians need approval to perform procedures and it may reduce a patient’s option for care if not approved

consumer pays a small copayment or other deductible

37
Q

HSA’s have a catch up contribution of $1000 at what age?

A

age 55

38
Q

distributions from an HSA for non qualified medical expenses are subject to income tax and a 20% penalty if taken before age….

A

65

39
Q

noncancellable policies

A

policies are continuous and guarantee an insured the right to renew until a specified age or state number of years

insurer cannot raise premiums and cannot cancel the policy

40
Q

guaranteed renewable policy

A

right to renew is guaranteed until a specific age or state number of years

insurance company cant cancel the policy but they can raise premiums

41
Q

COBRA must be offered for how many months for a reduction in hours or termination?

A

18 months

42
Q

COBRA must be offered for how many months for death?

A

36 months

43
Q

COBRA must be offered for how many months for divorce?

A

36 months

44
Q

COBRA must be offered for how many months for medicare eligibility?

A

36 months

45
Q

COBRA must be offered for how many months for loss of dependency status by children of employee?

A

36 months

46
Q

COBRA must be offered for how many months for the disabled?

A

29 months

47
Q

employees have how many days to make a COBRA election?

A

60 days

48
Q

COBRA continuation coverage may be terminated if:

A
  • employer terminates the health plan for all employees as a result of the company going out of business
  • employee or bene fails to make premium payments
  • employee becomes covered under any other plan providing medical care
49
Q

Medicaid

A

available for the nation’s poor

paid by the government at either the state or federal level or a combination of the two

eligibility is based on a person’s assets

50
Q

long term care insurance

A

provides coverage for nursing home stays and other types of care not covered by health insurance

  1. skilled nursing
  2. intermediate nursing
  3. custodial care
  4. home health care
  5. assisted living
  6. adult day care
  7. hospice care
51
Q

skilled nursing

A

traditional nursing home, physician ordered

52
Q

intermediate nursing

A

occasional nursing care, physician ordered

53
Q

custodial care

A

assistance with eating, dressing, bathing, etc

54
Q

home health care

A

in home nursing or necessary assistance

55
Q

assisted living

A

apartment style living with healthcare services

56
Q

adult day care

A

daily assistance while a spouse or family member works

57
Q

hospice care

A

for terminally ill, at home, hospital, or nursing facility

58
Q

chronically ill

A

unable to perform 2 of 6 ADLs for at least 90 days

59
Q

what are the activities of daily living?

A

eating
bathing
dressing
transferring from bed to chair
using the toilet
continence

60
Q

substantial cognitive impairment

A

behavior threatens own/others health and safety

61
Q

tax benefits for long-term care

A

premiums are tax deductible

benefits are tax-free as long as a policy is qualified (aka person is expected to need care for at least 90 days, unable to perform 2 or more ADL OR a person suffers substantial cognitive impairment

62
Q

definition of disability: any occupation

A

considered disabled if insured cannot perform the duties of “Any Occupation”

provides the least expensive premium

63
Q

definition of disability: modified any occupation

A

considered disabled if unable to perform duties of gainful occupation they’re reasonably fitted by education, experience, training, and prior economic status

64
Q

definition of disability: Own Occupation

A

considered disabled if insured cannot perform the duties of his “own Occupation”

more expensive, ideal for specialized high paying fields

65
Q

definition of disability: split definition

A

begins with own occupation and moves into modified any occupation after a year or two under the own occupation definition

66
Q

taxation of benefits - disability insurance

A

if EMPLOYEE pays the premium with after tax dollars – premiums are not deductible and benefits are tax free

if EMPLOYER pays the premium, the premiums are deductible to employer, benefits to employee are taxed

if EMPLOYEE pays the premium with pre tax dollars, the benefits to employee are taxed

My CFP Flashcards (18 decks)

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