life, health, and disability insurance Flashcards
needs approach
evaluates the income replacement and lumpsum needs of survivors in the event of an income producer’s untimely death
human life value approach
uses projected future earnings less self-maintenance costs as the basis for measuring the life insurance needs
annual renewable term
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
level term
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
decreasing term
premiums are level
no cash value
death benefit decreases over the term of the policy (appropriate for the purpose of paying down a mortgage)
when is appropriate to use term life policies?
to pay off temporary needs such as education funding, paying off debts, or to cover expenses during the grieving process
advantages and disadvantages to whole life insurance/permanent life insurance
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
ordinary life
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
limited pay life
premiums are higher than ordinary life because the insured only pays the premiums until a certain age
variable life
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
current assumption whole life
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
appropriate uses of whole life insurance
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
nonparticipating
when the whole life policy does not pay dividends
participating
when the whole life policy DOES pay dividends
what are the different dividend options for whole life insurance?
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
what are the nonforfeiture options for life insurance
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
universal life insurance
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
universal life 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
universal life B
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
variable universal life
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
non direct recognition program
does not adjust the dividends paid on a policy when there is an outstanding loan against the cash value of a policy
direct recognition program
dividends are reduced by any outstanding loan against the policy
group term insurance
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
group whole life insurance
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
a policy is a MEC aka modified endowment contract when….
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
does exchanging life insurance to life insurance create a taxable event?
NO
does exchanging life insurance to an annuity create a taxable event?
no tax
does exchanging an annuity to life insurance create a taxable event?
YES
does exchanging an annuity to an annuity create a taxable event?
NO
health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does hospital expenses cover?
covers expenses associated with hospitalization such as room and board charges, but it does not cover physician fees
health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does surgical expenses cover?
covers surgeon fees whether in a hospital or outside of a hospital
health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does physician’s expenses cover?
covers all nonsurgical physician expenses
health insurance is divided into four major classes: hospital expenses, surgical expenses, physician’s expense, and major medical. what does major medical cover?
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
health maintenance organizations (HMOs)
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
preferred provider organizations (PPO)
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
Managed Care aka Primary Care Physician (PCP)
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
HSA’s have a catch up contribution of $1000 at what age?
age 55
distributions from an HSA for non qualified medical expenses are subject to income tax and a 20% penalty if taken before age….
65
noncancellable policies
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
guaranteed renewable policy
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
COBRA must be offered for how many months for a reduction in hours or termination?
18 months
COBRA must be offered for how many months for death?
36 months
COBRA must be offered for how many months for divorce?
36 months
COBRA must be offered for how many months for medicare eligibility?
36 months
COBRA must be offered for how many months for loss of dependency status by children of employee?
36 months
COBRA must be offered for how many months for the disabled?
29 months
employees have how many days to make a COBRA election?
60 days
COBRA continuation coverage may be terminated if:
- 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
Medicaid
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
long term care insurance
provides coverage for nursing home stays and other types of care not covered by health insurance
- skilled nursing
- intermediate nursing
- custodial care
- home health care
- assisted living
- adult day care
- hospice care
skilled nursing
traditional nursing home, physician ordered
intermediate nursing
occasional nursing care, physician ordered
custodial care
assistance with eating, dressing, bathing, etc
home health care
in home nursing or necessary assistance
assisted living
apartment style living with healthcare services
adult day care
daily assistance while a spouse or family member works
hospice care
for terminally ill, at home, hospital, or nursing facility
chronically ill
unable to perform 2 of 6 ADLs for at least 90 days
what are the activities of daily living?
eating
bathing
dressing
transferring from bed to chair
using the toilet
continence
substantial cognitive impairment
behavior threatens own/others health and safety
tax benefits for long-term care
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
definition of disability: any occupation
considered disabled if insured cannot perform the duties of “Any Occupation”
provides the least expensive premium
definition of disability: modified any occupation
considered disabled if unable to perform duties of gainful occupation they’re reasonably fitted by education, experience, training, and prior economic status
definition of disability: Own Occupation
considered disabled if insured cannot perform the duties of his “own Occupation”
more expensive, ideal for specialized high paying fields
definition of disability: split definition
begins with own occupation and moves into modified any occupation after a year or two under the own occupation definition
taxation of benefits - disability insurance
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
