Risk Management and Insurance Flashcards

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1
Q

investment in life insurance contract (basis)

A

premiums paid - divs received - outstanding loans or withdrawals = investment in contract

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2
Q

MEC taxation

A

death benefit = no income tax

withdrawals/loans = LIFO , taxed as ordinary income and if under 59.5 then additional 10% penalty on both loans and withdrawals

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3
Q

life insurance taxation (non MEC)

A

death benefit = no income tax

loans = no income tax

withdrawals = FIFO, taxed as ordinary income

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4
Q

life insurance gain

A

surrender value - investment in contract taxed as ordinary income

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5
Q

fixed annuity exclusion ratio

A

investment in contract/expected return

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6
Q

taxation of annuitization

A

partial return of basis and partially taxable using the exclusion ratio

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7
Q

taxation of lump sum annuity withdrawals (prior to annuitization)

A

Pre Aug 14 1982: FIFO

after: LIFO, and 10% penalty if before age 59.5

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8
Q

variable annuity exclusion ratio

A

investment in contract/annuitant’s life

payments beyond life expectancy are fully taxable (unless payments begin on or before Dec 21 1986)

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9
Q

Any Occ

A

inability to perform the duties of any occupation then policy will pay - must be unable to do any job (strictest)

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10
Q

Own Occ

A

inability to perform your own job then policy will pay (best if you are the insured)

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11
Q

disability: guaranteed insurability rider

A

guarantees the insured the right to purchase additional amounts of disability without future evidence of disability

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12
Q

disability: noncanellable

A

policy is continuous, guarantees the right to renew until a certain age or number of years with a fixed premium

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13
Q

disability: guaranteed renewable

A

right to renew is guaranteed, but insurance company can increase premiums based on class (group basis)

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14
Q

disability: conditionally renewable

A

continuous term policy that the insurance company may terminate if certain contractual conditions are met (ex: retirement)

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15
Q

taxation of disability benefits

A

ER pays premiums: taxable to EE, tax deductible by ER

EE pays premiums: tax free benefits

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16
Q

COBRA terms of coverage

A

18 months: change in employment status up to 29 months: EE meets SS def of disability 36 months: death, divorce, termination of plan, medicare

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17
Q

COBRA applies to

A

employers who have a plan and 20 or more employees (part time = 1/2 employee)

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18
Q

Medicare Parts

A

A: Hospital care benefits

B: physician’s services, home health services, diagnostic tests, medical equipment, and outpatient services

C: medicare advantage

D: Drugs

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19
Q

Medicare Part A

A

hospital care benefits - medicare pays for up to 90 days for each benefit period. Benefit period ends when patient is out of the hospital for 60 days.

skilled nursing care - will pay the first 20 days, for days 21-100 will only pay partial amount, no coverage after 100 days

most people do not pay a monthly premium for part A if they or their spouse have 40 or more quarters of medicare covered employment

  • 30-39 quarters pay $259
  • few than 30 pay $471
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20
Q

HSA

A

above the line deduction, and tax free distribution if used for qualifying medical expenses for qualifying individuals with a high deductible health plan

if contributions exceed limits, 6% excess tax imposed on excess (mind the max or 6% tax)

nonqualified withdraws subject to 20% penalty. NO penalty after age 65

can do a one time rollover from FSA or HRA to HSA

can also do a one time rollover from IRA to HSA

HSAs can let funds accumulate until needed, NO RMDS

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21
Q

Long Term Care ADLs

A

Bathing

Eating

Dressing

Toileting

Transferring

Continence

OR severe cognitive impairment

22
Q

ISO taxation

A

1 year from exercise/2 years from grant:

  • grant:* no tax
  • exercise:* no regular tax, FMV - exercise price = AMT positive adjustment
  • sale:* FMV - exercise price = capital gain, negative AMT adjustment
23
Q

NQSO taxation

A
  • grant:* none
  • exercise:* FMV - exercise price = W2 income, subject to payroll taxes
  • sale:* current FMV - FMV at exercise = capital gain
24
Q

ISO taxation (disqualifying disposition)

A

deposing of stock before holding period expires

  • exercise:* FMV - exercise price = W2 income, NOT subject to payroll taxes
  • sale:* current FMV - FMV at exercise = gain or loss (ST or LT)

if loss then include the excess of the amount realized on the sale over the adjusted basis into ordinary income

25
Q

Homeowners coverage

A

Section I (Coverage: A B C D)

A (abode) - Dwelling and Attached Structures

B (building) - Other structures, separate from dwelling (detached garage, fences, sheds)

C (contents) - Contents and Personal Property

D (‘dditions) - Loss of Use

Section II (Coverage: E F)

E (enemy) - Liaiblity

F (First Aid) - Medical Payments

26
Q

actual cash value

A

personal property replacement cost - depreciation

27
Q

homeowners: coverage A

A

dwelling includes:

  • structures attached
  • materials and supplies inside

land excluded

if less than 80% of replacement cost, then insurance will only pay partial should recommend 100% replacement cost covered

28
Q

homeowners: coverage B

A

detached garage and other structures

10% of amount of insurance on dwelling applies to structures

does not apply to anything used for business purpose does not apply to a structure rented to someone who is not a tenant of the building

29
Q

homeowners: coverage C

A

personal property

extends world wide

generally insurance will be 50% of the insurance on the dwelling (can be changed) excluded when covered by another policy

if personal property is held somewhere other than the residence - then 10% of insurance on dwelling

30
Q

homeowners: coverage D

A

loss of use:

  • additional living expense
  • fair rental value
  • prohibited use

HO-1 and HO-8 10% of dwelling

HO-2, -3 and -5 30% of dwelling

HO-4 30% of personal property

HO-6 40% of personal property

31
Q

homeowners: coverage E

A

personal liability on or off premises

claims against bodily injury and property damage covered

personal injury not covered

32
Q

homeowners: coverage F

A

medical payments to others

does not cover you or your family or employees do not need to be liable

33
Q

homeowners exclusions

A

Power failure

Ordinance or law

Water damage

War

Neglect

Intentional loss

Nuclear hazard

Earth movement

POWW NINE

34
Q

HO-2

A

broad form (coverage for 18 named perils)

35
Q

HO-3

A

special form - open peril except broad form for coverage C can be endorsed with HO-15 for open perils

36
Q

HO-4

A

contents broad form - renters (coverage for 18 named perils) loss of use limited to 30% of coverage C

37
Q

HO-5

A

comprehensive form similar to HO-3, but everything open peril

38
Q

HO-6

A

condo owners broad form (18 named perils) loss of use coverage 40% of coverage C

39
Q

HO-8

A

modified coverage form for older homes. ex - victorian homes basic coverage

40
Q

Basic Perils

A
  1. Fire
  2. Lighting
  3. Explosion
  4. Smoke
  5. Hail
  6. Windstorm
  7. Aircraft
  8. Riot
  9. Theft
  10. Vehicle
  11. Vandalism
  12. Volcanic erruption

FLESH WARTS VVV

41
Q

broad perils

A
  • basic perils 1-12 +*
    13. falling objects
    14. weight of ice, snow sleet
    15. discharge or overflow of water or steam
    16. tearing apart, cracking, bulging, burning, of a steam hot water air conditioning, or fire protective sprinkler, or from within a household appliance
    17. freezing of plumbing, heating, air conditioning, or automatic fire sprinkler or household appliance
    18. sudden and accidental damage from artificially generated electrical current
42
Q

group term life insurance

A

first $50k of coverage paid by ER is tax free to EE

any amount over the premium per $1k is included in w2 income less EE contribution

premiums paid by ER are deductible by ER

plan must be nondiscriminatory or loses tax benefits

43
Q
  • what qualifies as substantial risk of forfeiture:
    • unsecured promise to pay?
    • rabbi trust?
    • secular trust?
A
  • unsecured promise to pay - yes
  • Rabbi trust
    • yes, funds are set aside but subject to the employers creditors in event of bankruptcy or liquidation
    • no tax to EE or deduction for ER
    • taxation/deduction happen when in constructive receipt
  • Secular trust -
    • NO, funds are secured for the benefit of the EE.
    • EE is taxed on amounts contributed to the trust and ER gets deduction
44
Q

unfunded vs funded

A

unfunded - mere promise to pay, funds are subject to employeers creditors. incoem is not constructively recieved so not taxable

funded - set aside from claims of creditors, EE must include value in gross income

45
Q

FSA

A

funded by voluntary salary reductions (not subject to income or payroll tax), may include employer contributions (ER will get tax deducion)

two types: health and dependent care

any unsed amount within a certian period is forfeited

LTC and over the counter meds are not eligible for reinbursement

max salary reduction for dependent care = $5k

max medical expense reimbursement is $2,750

46
Q

Medicare Part B

A

basic premium $148.50, higher if income is above $88k

people who are eligible for A automatically are enrolled in B

$203 deductible, then 80/20 coinsurance

covered expenses: physicians services, home health services not requiring a hospital stay, diagnostic tests, medical equipment, and all outpatient services

47
Q

auto liability coverage: split limit basis

A

bodily injury for one person/all persons injured in a single accident/property damage

ex: 100/300/50

  • 100 = $100k bodily injury for one person
  • 300 = $300k all persons injured in a single accident
  • 50 = $50k property damage
48
Q

PAP parts

A
  • A: liability coverage (mandatory - most states minimum is $25k)
  • B: medical payments
  • C: uninsured motorists
  • D: Damage to your auto
  • E: duties after accident or loss
  • F: general provisions
49
Q

home insurance: amount insurance company pays

A

(amount of insurance carried/amount of insurance required) X loss - deductible

50
Q

types of hazard

A

physical: physical characteristics of the person or proeprty increase chance of loss. ex: oily rags left near furnace
moral: chance of loss due to dishonesty (person intentionally causes loss
morale: indifferance to loss due to insurance (creates carlessness)

51
Q

section 83b election

A

employee who receives restricted stock may elect to recognize the income immediately rather than waiting until no longer a substantial risk of forfeiture

EE will include FMV of the stock less amount paid as w2 income subject to payroll taxes

any subsequent appreciation is treated as cap gains

52
Q

last month rule: HSA

A

if you are eligible for an HSA on Dec 1st you are considered eligible for the entire year