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Quiz Questions Flashcards

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1
Q

Indirect losses are also called what?

A

consequential losses

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2
Q

When must a direct loss occur?

A

before an indirect loss

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3
Q

What is a secondary result of an insured peril?

A

indirect losses

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4
Q

What is the equation to determine the insurance needed with needs analysis?

A

Projected need - available resources

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5
Q

Capital retention approach assumes what

A

desired income is provided by investment earnings on principal only

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6
Q

Capital retention approach typically requires a larger what

A

present value principal amount than that of capital liquidation method

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7
Q

Brenda has $100 deductible, 65/35 coinsurance, 5k stop loss. Accident expenses were $14,200, what is her out of pocket expense?

A

$14,200 - $100
$14,100 x .35 = $4,935 + $100 BUT her stop loss is 5k

So, she would pay 5k total

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8
Q

When given 2 coinsurance amounts which one do you use?

A

the small percentage

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9
Q

Under capital liquidation approach, what product could you use for lifetime income?

A

Annuity

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10
Q

Under capital liquidation - what could happen to principal between present age and death?

A

complete liquidation of principal between present age and maximum age

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11
Q

What does each party give each other in a valid contract?

A

Consideration
How considerate of you!

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12
Q

Who makes a binding promise in an insurance contract?

A

Insurer

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13
Q

Should the insured profit from an insurance transaction?

A

No

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14
Q

How does the insurer enforce the principal of indemnity? What actions?

A

-insurable interest
-actual cash value settlements
-operation of subrogation clauses

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15
Q

Purpose of a binder

A

provide coverage during the time it takes to process an application - can be written or oral form

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16
Q

Does replacement cost EQUAL fair market value?

A

No - replacement cost is $ it takes to rebuild a similar structure but doesn’t not factor in the value of the land and location to the replacement cost

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17
Q

When must insurable interest exist in property insurance

A

At the beginning AND the end

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18
Q

First thing you do when do a question on partnerships?

A

figure out the partnership percentage

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19
Q

Partnership worth 2 mil. A owns 54% B owns 38% and C owns 8% - how much must B purchase on other 2?

A

First find percentages. 54% of 2 mil = 1,080,000, 8% of 2 mil = 160,000

Then, divide by how many partners are buying insurance on each. So, 2 partners buying insurance on the other, divide by 2.

buy 540k on A and 80k C

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20
Q

After 13 years a split $ LI policy has DB of 200k, cash val 35k. Total employer paid premiums are 30k. At employees death, what will employer receive?

A

Employer receives 30k premiums back. Employee receives 200k-30k premiums = 170k

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21
Q

On a split dollar life insurance policy, the employee receives what?

A

The DB - premiums paid by employer.

Makes sense BC employer gets premiums back

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22
Q

If a loss is above the policy limit, who bears the cost of any deductible and the amount of loss above the policy limit?

A

The insured

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23
Q

How much insurance to people tend to buy for low frequency high severity loss? Too much or too little?

A

Too much

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24
Q

How much insurance to people tend to buy for high severity low frequency loss?

A

Too little

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25
Q

If an insurers liabilities are greater than their assets what are they?

A

insolvent

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26
Q

You have a PAP with 50k/150k/10k. Accident injures Dad, Mom, Kid 50k,90k,20k. What will the policy pay out?

A

50k Dad
50k Mom
20k ki

Per split limits

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27
Q

Mary has HO-3 coverage for 250k on her dwelling w/1k deduct. Home is worth 310k. A tree fell and caused 20k damage. How much will insurance reimburse?

A

[250k/310k*.8 ] is greater than 1 so the ratio is ignored
20k damage - 1k deductible = 19k reimbursement from insurance co

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28
Q

John has 300k coverage under HO-3, house fire caused 200k damages. Replacement cost excluding land is 425k. Deductible is $250.

A

300,000 / (425,000 * .8) = .882

200,000 * .882 = $176,471 - 250 = 176,221

200,000 -176,221 = 23,779 out of pocket

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29
Q

Car worth 20k. Parked in garage when earthquake destroys. No earthquake coverage on garage. PAP has collision coverage with $750 deductible and comprehensive with $250 deductible. Car is worth $250 after accident. What will insurance cover?

A

$20,000 - $250 current value

$19750 - $250 deductible = $19,500 reimbursement

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30
Q

Personal Property is covered under which letter?

A

Coverage C

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31
Q

Are punitive damages awards for injuries suffered?

A

No - they are damages made to punish defendants for outrageously offensive acts

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32
Q

Does commercial general liability coverage provide E&O coverage?

A

No - that would be a professional liability policy

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33
Q

Contributory negligence

A

an injured plaitiff’s failure to exercise reasonable care for their own safety

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34
Q

Contributory negligence can do what for a gross negligent defendant?

A

Contributory negligence can relieve a gross negligent defendant of responsibility for an accident

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35
Q

Torts are subject to what

A

state laws and civil actions

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36
Q

Maximum probable loss

A

maximum damage a peril MIGHT cause under average circumstances

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37
Q

Maximum possible loss

A

total financial harm a loss could cause under worst circumstances

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38
Q

Stacy can receive 1 mil DB or a payment of $5750 at the beginning of each month for 15 years. What is the required return the insurance company is offering her?

A

ITS MONTHLY
BEG
N = 15 g 12x
PV = 1,000,000
PMT 5750
SOLVE FOR i
i = .0387 then hit 12 x (mulitply)
answer .4640

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39
Q

Stacy can receive 1 mil or 5750 monthly for 15 years. If susan takes the 1 mil and invests at a rate of 7.5% and takes a 10k payment at the beginning of each month, in how many months will the payment stop?

A

solve for N
BEG
i = 7.5 g 12/
PV (1,000,000)
PMT = 10000
n = 156
answer is 156 months

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40
Q

Susan can receive 1 mil or 5750 monthly for 15 years. She also has option to leave 250k to her 2 children. Assuming annual rate of 3.5% what would the annual payment be at the beginning for 15 years?

A

solve for payment
n = 15
i = 3.5
PV = (1,000,000)
FV = 250,000
BEG
PMT = 71,370.82

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41
Q

Upon death of breadwinner, family needs $1,500 a month at the beginning of each month for the next 15 years under the capital liquidation approach. Required rate of return is 4.25%

A

BEG
N = 15 g 12x
PMT = 1,500
i = 4.25% g 12divide
PV = 200,100

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42
Q

Fam need $1,500 @ beginning of each month for 15 years. Rate is 4.25%. Planner says they can reinvest the money at 5%. What is the increase in monthly payment?

A

n = 15 g 12x
i = 5 g 12divide
PV = (200,100)
BEG
PMT = 1,576
1,576 - 1500 = 76 increase

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43
Q

Employer’s/employees DB proceeds from split dollar plan are usually taxed or tax free?

A

tax free

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44
Q

Transfer of a split dollar policy to a corporation of which the insured is a shareholder or officer is exempt or not exempt from transfer for value rules?

A

NOT exempt

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45
Q

Mary has 75k medical policy with 1k deductible 25% coinsurance. Her expenses are 30k. What will the insurance company pay?

A

30,000 - 1,000

29,000 * .75 = 21,750

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46
Q

Will medigap policies cover expenses for intermediate or long-term custodial care?

A

typically No

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47
Q

The more coinsurance percentage the insured pays, what happens to the premium

A

the more coinsurance percentage the lower the premium

48
Q

Stacy was fired and is current on COBRA. When she worked, employer paid 35% of $421 per month premium and Stacy paid 65%. What is the max amount her employer can charge now?

A

102% max

421 x 102% = $429.42

49
Q

Under presumptive disability, are you still considered disabled if you return to work?

A

Yes

50
Q

Kasper earns $120k from a co with 60% long term disability policy. He pays 45% of the premium. Tax bracket is 24%. If he goes on long term disability, what amount is taxable?

A

The taxable amount is the amount of premium paid by the employer.

120k * .6 = 72k
72k * .55 = 39.6k
39.6k / 12 = $3,300

51
Q

John is 58 and residually disabled. Current income is 3,500 but was 8,500. Monthly indemnity amount is 5,500. How much can he collect under residual benefit?

A

[(8,500 - 3,500) / 8,500] * 5,500 = 3,235

52
Q

How to find residual indemnity?

A

[(Former income-Current income)/current income] * indemnity amount

53
Q

Medicare pays for 100 days of skilled nursing. How many days do you pay a deductible?

A

For the last 80 days - first 20 days are no deductible

54
Q

Can LTC be part of an employer’s cafeteria plan?

A

No

55
Q

Are employer contributions to an employees LTC premium excluded from the employees taxable income?

A

yes

56
Q

Mary has a participating Universal policy with 250k DB and 5k yearly premium. Cash value is 48k. After 9 years she receives a dividend of 1k, what is her cost basis?

A

5k * 9 years = 45,000
45,000 - 1,000 dividend = 44k

57
Q

If you buy a life insurance policy from someone, do you pay taxes when that person dies?

A

Yes - the death benefit minus the buyers cost basis is taxable

58
Q

If you sell a life insurance policy to someone else, when you die are those proceeds included in your estate?

A

No - they are not included in your estate or subject to estate taxes - the person you sold it to would pay taxes on the death benefit minus their basis

59
Q

Peter wants mortgage covered 175k and funeral expenses 25k when he dies. Wants wife to have 30 year annuity pays her 5k per month. Assume 6.5% rate of return. Wants 500k to go to daughter. What is present value?

A

Solve for PV
N = 30 g 12x
i = 6.5 g 12/
PMT = 5000
FV = 500k
PV = 916,979 + 200k (mortgage and funeral expense)
= 1,116,979

60
Q

Which statements are true regarding life insurance
Insurance contract is a personal contract of adhesion
Owner can assign or transfer the policy to whomever they choose even when there is no insurable interest

A

Both are true

61
Q

What type of annuity is a security per the securities act of 1933?

A

Variable annuity. Company offering is an investment co per investment co act of 1940

62
Q

What annuity type allows for money to be passed to heirs if the owner dies before the contract period ends?

A

life with period certain

63
Q

How long can the accumulation phase last on a deferred annuity?

A

until annuitization, until the owner’s death or the contract is surrendered

64
Q

Fred, 86, purchased an annuity with single lump sum payment of 25k on sept 27th 1981 - today’s value is 200k and Fred received his first distribution of 1k - how is it taxed

A

Tax-free return of basis due to FIFO. Annuity was purchased before 8/14/82 so FIFO rules apply.
Single premium deferred annuity because he waited on the distribution

65
Q

Mary has 60% disability on 80k salary. Premium is 2500 and she pays 55%. Elimination period is 90 days. If she becomes disabled on July 1, what is the taxable portion of payments for the year?

A

80,000 * .6 = 48,000
48000 * .45 = 21,600
July 1 + 90 days = 3 months left
21,600/12 = 1,800 * 3 = 5400

66
Q

Bob has a variable LI with 300k DB. Cash val at his death is 175k. He borrowed 25k and the interest is 1k. What will he receive?

A

300k - 25k - 1k = 274k

67
Q

What is the excess contribution tax on an HSA?

A

6%

68
Q

If you use HSA for non-qualified purchases, what is the penalty?

A

income tax and 20% penalty

69
Q

Mary, age 54 withdrew 5k from her HSA to go to Paris. If her marginal tax rate is 25% - what is her penalty?

A

5k is subject to 25% tax and 20% penalty because she withdrew the funds before age 65

70
Q

Peter purchased an immediate straight life annuity for 200k. When he dies, can the basis be taken as a deduction against his gross income on IRS form 1040?

A

No, it is taken as an itemized deduction NOT subject to 2% of AGI. Peter must itemize deductions to take advantage of this benefit.

71
Q

Which would be a smaller payment, annuity due or ordinary annuity, all else being equal?

A

Annuity due - this makes sense because there is less time for the money to grow

72
Q

John, age 72 purchased an annuity on 7/26/80 for 25k and today it is worth 260k. If he takes a distribution, how is it taxed?

A

It is not taxed, it is a return of basis as he purchased before 8/13/82. FIFO applies. This reduces the basis from 25k to 15k.

73
Q

John purchased annuity at age 30 for 25k and added 1k for 25 years. Annuity is worth 250k and he takes a distribution of 60k. How is it taxed?

A

It is taxed as ordinary income because it is all earnings. LIFO applies. Also, 10% penalty because he is 55 and under age 59.5

74
Q

John purchased 25k annuity at age 30. Every year for 30 years he contributed 1k on the anniversary date. Today its worth 250k and he takes a 60k distribution. What is his basis after the distribution?

A

50k basis. Its LIFO. The entire 60k is earnings. So, his basis is still 50k

75
Q

Would the monthly payments from a refund annuity be greater than a straight life annuity?

A

No

76
Q

John annuitizes a contract and takes a straight life option, can he change it to a joint and last survivor?

A

No - once an annuity is annuitized, it cannot be changed

77
Q

If you’re taking an annuity distribution from an IRA and the contributions were deductible, what is taxable?

A

The whole thing is taxable because you already took the deduction

78
Q

What happens to annuity payments after the actuarial number of payments have been received?

A

They’re fully taxable

79
Q

John’s annuity basis is 50k and the annuity is worth 205k. He annuitizes for 40 year straight life monthly payments of $1,500 a month. What is the exclusion ratio?

A

50k / (1,500 * 12 * 40)
50k / 720k = 6.94 %M

80
Q

Mary’s car worth 40k. ratios are 100k/175k/350k. Premium is 2k and has $500 deductible for collision and $250 for comprehensive. John borrows Mary’s car - who’s insurance pays?

A

Mary’s is primary and John’s is secondary

81
Q

Mary’s car worth 40k. ratios are 100k/175k/350k. Premium is 2k and has $500 deductible for collision and $250 for comprehensive. Mary injures 2 people and they successfully sue for 90k each. What will she be required to pay after insurance reimbursement?

A

Each individual is covered up to 100k each. 90k + 90k = 180k. Which is 5k over the total payout limit.

She will have to pay 5k

82
Q

Mary’s car worth 40k. ratios are 100k/175k/350k. Premium is 2k and has $500 deductible for collision and $250 for comprehensive. Mary’s car is parked in the garage and a flood causes 9k damage. What will insurance pay?

A

Flood is covered under comprehensive. So 9,000-250 = $8750 reimbursement

83
Q

Susan owns a 400k house with an HO-3 policy.
Coverage A = 300k
Coverage B = 10% of A
Coverage C = 50% of A
Coverage D = 10% of A
Coverage E = 100k
Yearly Premium is 1k with $500 deductible.
What will the policy pay if an earthquake causes 100k of damage?

A

$0 - there is no “earth movement” endorsement so she gets NASING

84
Q

Susan owns a 400k house with an HO-3 policy.
Coverage A = 300k
Coverage B = 10% of A
Coverage C = 50% of A
Coverage D = 10% of A
Coverage E = 100k
If there is a fire in the garage, which part will cover?

A

Coverage B

85
Q

Susan owns a 400k house with an HO-3 policy.
Coverage A = 300k
Coverage B = 10% of A
Coverage C = 50% of A
Coverage D = 10% of A
Coverage E = 100k
Fire destroys the house and 175k of personal property is destroyed. What is covered?

A

Coverage C for personal property.

300k * .5 = 150k

150k of coverage

86
Q

Susan owns a 400k house with an HO-3 policy.
Coverage A = 300k
Coverage B = 10% of A
Coverage C = 50% of A
Coverage D = 10% of A
Coverage E = 100k
House is totally destroyed by the fire, what amount is covered for loss of use?

A

Coverage D Loss of use

300k * .1 = 30k

30k coverage for loss of use

87
Q

Susan owns a 400k house with an HO-3 policy.
Coverage A = 300k
Coverage B = 10% of A
Coverage C = 50% of A
Coverage D = 10% of A
Coverage E = 100k
2k annual premium, $500 deductible.
Susan has a 1 mil umbrella policy. Someone is injured on her property and sues for 1.6 mil. What amount is not covered?

A

Coverage E personal injury

100k + 1 mil = 1.1 mil

1.6 - 1.1 = 500k NOT covered

88
Q

When do you subtract the deductible from an expense?

A

You take out the deductible from the total expense and then multiply by the coinsurance amount - THEN add back the deductible for total out of pocket

89
Q

Subrogation allows collection by the insurance company from a third party as well as

A

Preventing someone from collecting twice

90
Q

What time period does the viator have to rescind their decision of a viatical settlement?

A

15 days

91
Q

Is the death benefit guaranteed in Variable life?

A

Yes

92
Q

Credits needed for SSDI

A

40 credits with 20 earned in the last 10 years ending with the year you become disabled

93
Q

What structure does H-03 cover?

A

Your home

94
Q

What structure does h-06 cover

A

Condo

95
Q

What specifically does H-06 cover?

A

Whats inside the walls of the condo

96
Q

Age to qualify for SSDI

A

62

97
Q

Variable annuities guarantee principle, and a set interest rate for a period of time, which results in level monthly payments.
True or False

A

True

98
Q

LTC Waiver of premium is common or not common

A

It is very common that premiums are waived while the insured is on claim.

99
Q

Susan purchased a non-qualified annuity for $60,000 which pays $1,000 a month starting on July 1stof the current year. If her life expectancy is 8.33 years, what is her taxable income for the current
year and next year

A

60,000 / (8.33 * 12 * 1000)
60,000 / 99,960 = .6002401
6 months of payments = 6000
6000 * .6002401 = 3,601basis
6000 - 3,601 = 2399 taxable income

then x 12 for the whole yaer

100
Q

A chronically ill person is unable to perform how many duties for how many days to qualify as chronically ill

A

2 activities for 90 days

101
Q

In home owner’s insurance does the replacement cost exactly equal the property’s fair market value?

A

No

102
Q

Mia has a whole life policy with a $300,000 death benefit and a $47,000 replacement value. The policy has a May 31st anniversary date and requires an annual $3,000 payment. Assume on July 31st of the current year she gifts the policy to her child. Which statements are correct?

A.
The death benefits received by the child are income tax free.

B.
The taxable gift at time of transfer is $32,500.

A

Both are correct

103
Q

True or false tax qualified LTC cannot provide a cash value for any reason other than upon full surrender or death of the insured

A

True

104
Q

ABC, Inc. has 20 employees and pays for their long-term care policies. The premiums are:

A

Deductible by the employer and excluded from income by the employee.

105
Q

Replacement cost uses what whereas book value includes what

A

Replacement cost uses fair market value
Book value includes depreciation

106
Q

Formula for residual indemnity

A

(Loss of Income / Prior Income) x Monthly Indemnity Benefit = ResidualIndemnity.

107
Q

Peter, age 70, has a health savings account (HSA) with a balance of $10,000. He withdrew $4,000for a down payment on his new car. If his marginal tax bracket is 25%, what is his total penalty?

A

No penalty. Just taxed at 25%

108
Q

Nicole, age 39, is single and worked for Walmart as the store manager. She was fired for notreporting to work. Which statement is true regarding her benefits under COBRA?

A

She will receive 18 months

109
Q

if Juan is presented an annuity that will allow for only 80% of the stock market gains but no chance of having a loss, this is called:

A

Index annuity

110
Q

Tom owns a participating Universal life policy with a $300,000 death benefit. The yearly premium is$6,000 and after 22 years, the cash value is $194,000. If Tom receives a $5,000 dividend in year 22,which statement is true?

A

6000 * 22 = 132,000
194,000 - 132,000 = 62 PLUS 5k dividend

67,000

111
Q

John works for an ammunition depot. Which of the following statements is/are correct?

Fire is a peril
Handling of ammunition is a hazard

A

Both are true

112
Q

Affordable Care Act does what re: lifetime dollar limits on insurance coverage for essential benefits?

A

It eliminates lifetime dollar limits on insurance coverage for essential benefits, like hospital stays

113
Q

COBRA
FIRED
DISABILITY
DEATH DIVORCE MEDICARE

A

18
29
36

114
Q

Kevin owns a 100k medical insurance policy w/$500 deductible and 25% coinsurance. If he has 35,000 medical expenses, what will Kevin pay?

A

35,000 - 500 = 34,500
34,500 * .25 = 8,625
8,625 + 500 = 9,125
Kevin will pay $9,125

115
Q

Is volcano covered under open perils in H03?

A

Yes

116
Q

3 defenses against negligence

A

Contributory
Comparative
Assumption of the Risk

117
Q

Do you pay taxes on a viatical settlement?

A

No generally

Insurance CFP (14 decks)

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