Risk Management and Insurance Planning (11%) Flashcards
4 Ways to Address Risk
ARRT (Pirate Art)
Avoidance - Not skydiving
Reduction - Alarm
Retention - Insurance Deductible
Transfer - Insurance
HSA Contribution Limits
$4,150 Single
$8,300 Family
+$1,000 if 55+
HDHP Limits
Single - $1,600+ deductible; Max $8,050;
Family - $3,200+ deductible; Max $16,100
HSA Last-Month Rule
If eligible under HDHP on first day of last month of tax year, may fund HSA for entire year
HSA Withdrawal Restrictions
Tax free if used for medical expenses
W/d prior to age 65 for non-medical has 20% penalty
IRA to HSA rollover
1x Lifetime!
Max of annual HSA contribution
Must maintain HSA for 12-months afterwards
ER’s required to offer COBRA
Group health plans with 20+ employees
COBRA Qualifying Events
Death of Covered EE
Termination, Resignation, Retirement - not gross misconduct
Reduction in hours causing ineligibility
Divorce of covered EE
EE going on Medicare - spouse and children can use COBRA
a Child ceasing to be eligible dependent
Cost and Paying for COBRA
Qualified Bene pays up to 102% of the costs
Premiums due monthly
COBRA Durations
18-months:
Termination, Resignation, Retirement, Reduction in hours.
29-months: Disability
36-months: All other’s
Medicare Coverage for SNF
Patient pays:
Days 1-20 = $zero
Days 21-100 =$204/day
Days 101+ = patient pays all costs
ADL’s (2 of 6 for LTCi)
BED COT
Bathing
Eating
Dressing
Continence
On-Off Toilet
Transferring
*Not blindness or inability to walk
Or - substantial cognitive impairment
LTCi Tax Treatments
-Benefits are received tax-free
-Premiums are qualified medical expenses for itemized deductions for medical expenses
-Premiums can be paid from HSA
-Premiums paid by ER are tax-free to EE’s and benefits are tax-free
LTCi Incontestability Rule
2-year incontestibility period (insurers cannot cancel after 2 years for application errors)
4 definitions of disability for disability insurance
Any-Occupation - less expensive, least favorable
Own-Occupation - more expensive, more favorable
Modified Own-Occupation - hybrid
Social Security Disability - toughest definition of disability
Disability Insurance Benefits Taxation
ER paid premiums = Taxable Benefit to EE
ER paid and added to W-2 = benefits are tax-free
EE paid w/ after-tax = benefits are tax-free
EE paid with pre-tax = benefits are taxable
Term Life Insurance Features
Lowest Premium
No cash value
May be participating (dividends)
May be renewable
May be convertible to permanent
Level Term vs. Decreasing Term (loans)
Annual Renewable, First-to-Die, Second-to-Die
Similarities b/w Universal and Whole Life Insurance
Higher premiums than term
Build cash value
Cash accessible through loans or withdrawals
May be participating (dividends)
Universal Life Insurance features
Fixed, Variable or Indexed.
Option A = death benefit remains level
Option B = death benefit is face plus cash value
Whole Life Insurance
Types and Features
Variable, Second-to-Die, Graded Premium, Modified, Limited Pay. Guaranteed Issue
Guaranteed death benefit
Guaranteed premiums
Tax-deferred cash value growth
Life Insurance - Extended Term Option
Use cash value as a single premium to pay for term life as long as possible
May allow re-instatement
Reduced Paid-Up Insurance
Cash value is used to buy a paid-up policy of the same type as the policy that lapsed.
Has a reduced death benefit
Will retain cash value that continues to grow
5 Life-Insurance Non-Forfeiture Options (SERIAL)
(SERIAL)
1. Cash Surrender Value
2. Extended-Term Option
3. Reduced Paid-Up Insurance
4. Immediate Single-Premium Annuity
5. Automatic Premium Loan
Automatic Premium Loan on Life Insurance
Use cash value to pay overdue premiums.
Loan is added to other loans
Unpaid loan and accrued interest is deducted from death benefit
Modified Endowment Contracts (MECs) - Penalties
Enacted to curtail use of single premium life insurance as a tax-free income investment vehicle.
LIFO treatment for distributions and Loans
10% penalty for any loan or withdrawal if under 59-1/2
Tax Free death benefit
Viatical Settlement Features
Selling a cash-value life insurance policy.
Must be Terminally ill (24-months)
Must be Chronically ill (2 of 6 ADL’s for 90-days+)
15-day cooling off period to retract sale.
Viatical Settlement Taxation
If terminally ill - tax free to policy owner
If chronically ill - tax-free is used for medical
Viator = cash paid, plus subsequent premiums is the basis; excess is taxable.
Buy-Sell Agreement Basis
Entity-Purchase does not give basis to any owner
Annuity Taxation
-No step-up at death - considered IRD
-Withdrawals have 10% penalty before 59-1/2
-Annuitization Payments - Exclusion allowance for basis
-Withdrawals are LIFO (prior to 1982 = FIFO)
-Ordinary Income on taxable distributions
Income in Respect of a Decedent (IRD)
Untaxed income that a decedent had earned or had a right to receive during their lifetime. Taxes on IRD are owed by the individual beneficiary or entity that inherits this income.
Annuity Exclusion Ration Formula
Investment in Contract / Annual Payment x Life Expectancy
If payments go beyond life expectancy - all taxable income
Permitted Sec. 1035 Exchanges
Life Insurance -> Endowment -> Annuity -> LTCi
6-parts of Homeowners Insurance
Property:
A = Address
B = Backyard
C = Crap
D = Damaged
Liability:
E - Exposure to Legal action
F - Funds for Fractured Femurs
Homeowner’s Insurance Policy Forms
HO-2 - Basic
HO-3 - Better (named perils)
HO-4 - Tenants (contents only)
HO-5 - Comprehensive (open perils)
HO-6 - Condo
HO-8 - Historical Homes
HO-15 Endorsement for open perils for contents
HO-3 + HO-15 = HO-5
Named Perils vs Open Perils
Named = names causes of loss that are covered; everything else is excluded.
Open = names causes that are NOT covered; everything else is covered.
Homeowners Coinsurance Requirements
Insured for 80% of Replacement Cost Value (RCV)
If above: pays actual cost up to policy limit
if below: pays replacement cost - depreciation or Proportional amount
Formula:
(“Did Have” / “Should Have Had”) x Loss Amount - Deductible
Umbrella Insurance
Insured pays difference between underlying coverage requirement and actual coverage.
Auto Insurance
Part A vs. Part D
Part A -
Liability ($250/$750/$100 =
Max Bodily injury $250k,
Max all bodily injuries $750,
Max Prop Damage $100k)
Part D - Damage to your Auto (Collision or Comprehensive)
Measure of Diversifiable Risk + Market Risk
Standard Deviation
Measure of Non-Diversivfiable Risk
Beta
