Risk Management and Insurance Planning Flashcards
What is the definition of Social Security disability?
- any occupation
- medical condition must be expected to last no less than 12 months or expected to result in death
What is the most favorable definition of disability for an insured?
own occupation
What is the least favorable definition of disability for an insured?
any occupation
What requires a 90-day certification for LTC claims?
being unable to perform 2 of 6 ADLs
What are the 6 ADLs?
1) Bathing
2) Eating
3) Continence
4) Dressing
5) Toileting
6) Transferring
Can LTC premiums paid be used as qualified medical expenses for itemized deductions?
yes
For HSAs, what is the penalty for making a non-eligible transaction before age 65?
- 20% penalty
- distribution will be taxable
What is the penalty for taking a non-eligible distribution from an HSA after age 65?
the distribution will be taxable
What is the catch-up contribution age for an HSA?
55
Part-time employees count as how many people towards a census for COBRA?
1/2 a person
COBRA does not apply for which type of termination?
gross misconduct
36 months for COBRA applies for:
1)
2)
3)
4)
1) divorce
2) death
4) dependent reaches age of majority
5) Medicare enrollment
How are qualified LTC premiums that are paid by an employer taxed to the employee?
they are tax-free
How are disability benefits received by an employee when the premiums are paid by an employer taxed to the employee?
the benefits are taxable to the employee
How are disability benefits received by an employee as part of their compensation from their employer taxed to the employee?
the benefits are received tax-free
Is the cash value in variable life policy sub-accounts subject to the creditors of an insurance company?
no
If the surrender of a life insurance policy is a taxable event, how is it taxed?
as ordinary income
Distributions from MECs are taxed how?
LIFO, ordinary tax rates
What is the penalty if a distribution is taken from a MEC before 59 1/2?
10%
A chronically ill person must do what with the money they receive from a viatical settlement in order for it to remain tax-free?
use it for LTC purposes
What is the requirement to be classified as “terminally ill” for purposes of a viatical settlement?
must not have a life expectancy of more than 24 months
A terminally ill person must do what with the money they receive from a viatical settlement in order for it to remain tax-free?
there are no requirements; the money is tax-free no matter how they spend it
What happens if a viatical settlement company pays premiums on a policy they purchased?
the premiums paid become a part of their basis
This rider waives future premiums if the insured becomes permanently disabled as a result of injury or illness prior to a specified age
waiver of premium rider
This rider allows you to purchase additional insurance coverage in the stated period without the need for further medical examination
guaranteed insurability rider (results in higher premiums)
This rider pays out an additional amount if the insured dies from the result of an accident. Sometimes referred to as the “double indemnity rider”
accidental death rider
This rider pays a monthly income to the beneficiary in addition to the policy face amount for a stated period of time to help with expenses in a transition period after the death of the insured
family income benefit rider
This rider provides a death benefit in case a child dies before a specified age
child term rider
What can you do with a child term rider if the child reaches maturity?
it can be converted into permanent insurance, often up to a multiple (4-5x) of the rider amount, without medical underwriting
This rider allows the spouse of the insured to have a term life insurance rider under a permanent policy insuring their spouse
spouse term rider
This rider typically allows a portion of the policy death benefit to be paid while the insured is alive and in need of LTC services
LTC rider
This rider allows a portion of the policy death benefit to be paid while the insured is still alive if they have been diagnosed with a terminal illness
terminal illness rider
This rider allows the refunding of premiums paid over a specified term if the insured is alive at the end of the period OR refunds the premiums paid to the beneficiary at the death of the insured
return of premium rider (insured will pay an additional premium for this rider)
What are some common exclusions not covered by homeowners insurance?
- flood
- earthquake
- termites
- mold
- nuclear hazards
- war
- government action
What is the cross-purchase plan equation?
n x (n-1)
What is the main disadvantage to an entity purchase agreement?
the surviving partner(s) do not get a step-up in basis
Who pays the premium in an entity purchase agreement?
the business
What is the order of options in purchasing a decedent’s interest with a wait-and-see agreement?
1) business
2) owner(s)
3) business (required if owners pass)
What are the 3 forms of annuitization?
1) life only
2) period certain
3) refund certain
Which form of annuitization provides the highest income, but ends at the death of the annuitant?
life only
Do annuities provide a step-up at death?
no
Taxable distributions from an annuity are always taxed at what income rates?
ordinary income
What is the exclusion ratio (the tax-free portion) of an annuitization payment?
basis / expected payout
What is the tax treatment of withdrawals from a non-qualified tax-deferred annuity?
LIFO
Are annuity withdrawals subject to any penalties if taken before 59 1/2?
yes, 10%
Basic homeowners coverage
HO-2
Homeowners coverage for renters
HO-4
Homeowners coverage for condo owners
HO-6
Which homeowners coverage is the best?
HO-5 (comprehensive form); covers on an open perils basis
What is the HO-15 endorsement?
an HO-3 policy can provide open perils coverage similar to an HO-5 policy
What is the description for HO-8 coverage?
“modified coverage”
HO-3 covers perils on what basis?
named peril
HO-5 covers perils on what basis?
open peril
This coverage specifies perils or “causes of loss” that are covered, and everything else is not covered
named peril basis
This coverage specifies excluded perils or “causes of loss” that will not be paid. Everything else is covered
open peril basis
HO-3 homeowners insurance provides dwelling coverage on ______ basis and contents coverage on ______ basis
open peril; named peril
What is the homeowners coinsurance formula?
[did have/should have x loss] - deductible
Coverage A
dwelling
Coverage B
detached structures
Coverage C
personal items
Coverage D
loss of use
Coverage E
liability
Coverage F
medical
In a PAP, what is the first split limit for?
1 person bodily injury
In a PAP, what is the second split limit for?
multiple person bodily injury
In a PAP, what is the third split limit for?
property damage
What is an example of comprehensive coverage?
car hitting a deer
PLUP policies can extend to what kind of vehicles?
ATVs and boats
PLUP policies can extend to what kind of liability?
slander and libel
In a waiver of premium rider, does the premium get waived for the elimination period?
yes
What kind of annuity is intended to reduce longevity risk?
deferred income annuity
The opportunity to renew a lapsed policy
reinstatement provision
The three basic components that establish the premium and define the payment of benefits under LTCi policies are:
the elimination period, the daily benefit amount, and the benefit period
HO-5 policies cover what % of contents?
50%
Which type of life insurance is known as “pure protection?”
term insurance
