Risk Management Flashcards
Business Liability Exposures
(1) Contractual Liability; (2) Sale or Service (for a fee) of liquor; (3) Employee Theft; (4) Pollution; (5) Product-Related; (6) Completed Operations.
Risk Management Methods
(1) Avoidance (staying away from a high crime neighborhood or not driving a car); (2) Reduction (wearing seatbelts or installing shutter) *Risk-sharing is a type.; (4) Retention (a health insurance deductible or no insurance); (5) Transfer: Insurance
Major Concerns insuring High-Value Property
(1) Ensuring an appropriate level of coverage and (2) Coordinating coverage so that there are no gaps or duplicates of coverage
Property Insurance Types
(1) Homeowners; (2) Automobile; (3) Inland Marine
Section I Standard Homeowner’s Insurance Form
(1) Coverage A: Insures Dwelling; (2) Coverage B: Insures other structures on premises; (3) Coverage C: Insures General Personal Property; (4) Coverage D: Provides Loss-of-use coverage
Section II of Standard Homeowner’s Insurance Inform
(1) Coverage E: Comprehensive Liability Insurance; (2) Coverage F: Medical Payments to others, claim expenses, damage to property of others, first-aid expense, loss assessment coverage
Standard Policy Forms
(1) HO 00 03
(2) HO 00 05
(3) Each provides coverage on an open perils basis: any risk not specifically excluded will be covered on some basis.
Policy Form for Old Homes
(1) HO 00 08
(2) Claims settles on actual cash basis (ACV), rather than replacement cost.
(3) When replacement cost exceeds ACV, as with some high value older homes, insurance would not be sufficient.
Homeowners Policy: Personal Property Limitation
(1) Some valuable personal property has limited levels of coverage with standard homeowner’s (2) Replacement cost coverage will not increase coverage levels of these items. (3) Solution: add personal property endorsement.
Type of Property covered by Inland Marine or Personal Property Insurance
Cameras, jewelry, furs, silverware, golf equipment, fine arts, antiques, rare stamps or coins, musical instruments, wedding gifts, etc.
25/50/10
(1) Bodily Injury $25k; (2) Accident $50k; (3) Property Damage $10k
Parts of a Standard Personal Auto Policy
(1) Part A: Liability Coverage; (2) Part B: Medical Payments Coverage; (3) Part C: Uninsured Motorist Coverage; (4) Part D: Coverage for Damage to your auto; (5) Part E: duties after an accident or loss; (6) Part F: General Provisions
Covered Vehicle in a Standard PAP
(1) Any vehicle listed in declarations of policy (2) Any new vehicle meeting PAP requirements as long as insurer is notified within 14 days of obtaining vehicle (3) Trailer’s owned by the insured, excluding mobile homes; (4) any vehicle substituting coverage vehicle due to breakdown, repair, servicing, loss, or destruction.
Physical Damage Coverage for PAP
(1) Collision; (2) Comprehensive (other than collision)
Liability Exposures Excluded from Coverage under Comprehensive Personal Liability Policy
(1) Intentional Acts; (2) Business and Professional Pursuits; (3) Rental of Property; (4) Motor Vehicles
Umbrella Liability Insurance
(1) Normal liability limit in excess of $1 million; (2) Require increased level of coverage in base policies-homeowner’s and auto; (3) increase and broaden coverage; (4) Pays after base
Professional Liability Coverage
(1) Malpractice Insurance: used by medical professionals in situations where they may cause physical harm. Policies are not standardized and can cover various specialties; (2) Errors and Omissions: used by professionals which may cause financial ham (lawyers, financial planners, brokers, etc.)
Commercial Liability Insurance
(1) Employer’s liability and Worker’s Compensation- Worker’s Comp prevent employer’s from being sued but employer’s liability covers litigious cases.; (2) Directors’ and officers’ errors and omissions insurance; (3) Employment Practices Liability Insurance; (4) Commercial Umbrella Liability Coverage aka Blanket Catastrophe Excess Liability Insurance
Two basis types of Life Insurance
(1) Temporary or Term; (2) Permanent
Multiple-Life Policies
(1) First-to-die used for personal or business uses like buy-sell/cross-purchase/mortgage/education ; (2) Second-to die (or survivorship) used mostly in estate planning in conjunction with unlimited marital deduction.
MEC
(1) Modified Endowment Contract if it fails seven-payment test; (2) Cash Withdrawal taxed at ordinary income and may be subject to 10% early withdrawal penalty (3) Death benefit normally paid on income tax-free
Viatical Agreement
(1) Provide a way for terminally ill or critically ill insured to receive some value from life insurance while still alive; (2) The insured sells policy and receives % of death benefit tax-free (3) Any gain is taxable to the new policy owner
Private Placement Life Insurance
(1) Custom-designed policies offered through domestic and foreign insurers to high net worth individuals; (2) Often structured to invest in a variety of investment vehicles like mutual funds, stocks, hedge funds, etc.
Overfunding a PPLI
(1) If cash account becomes too large relative to face value, growth may be currently taxable. (2) If it fails the seven-pay test, withdrawals prior to death will be taxed as ordinary income on a LIFO basis and subject to 10% early withdrawal. (3) Taxed on gains first instead of tax-free return of contributions
