Risk Management and Insurance Planning

Question 1

What is the definition of Social Security disability?

Answer 1

• any occupation
• medical condition must be expected to last no less than 12 months or expected to result in death

Question 2

What is the most favorable definition of disability for an insured?

Answer 2

own occupation

Question 3

What is the least favorable definition of disability for an insured?

Answer 3

any occupation

Question 4

What requires a 90-day certification for LTC claims?

Answer 4

being unable to perform 2 of 6 ADLs

Question 5

What are the 6 ADLs?

Answer 5

1) Bathing
2) Eating
3) Continence
4) Dressing
5) Toileting
6) Transferring

Question 6

Can LTC premiums paid be used as qualified medical expenses for itemized deductions?

Answer 6

yes

Question 7

For HSAs, what is the penalty for making a non-eligible transaction before age 65?

Answer 7

• 20% penalty
• distribution will be taxable

Question 8

What is the penalty for taking a non-eligible distribution from an HSA after age 65?

Answer 8

the distribution will be taxable

Question 9

What is the catch-up contribution age for an HSA?

Answer 9

55

Question 10

Part-time employees count as how many people towards a census for COBRA?

Answer 10

1/2 a person

Question 11

COBRA does not apply for which type of termination?

Answer 11

gross misconduct

Question 12

36 months for COBRA applies for:
1)
2)
3)
4)

Answer 12

1) divorce
2) death
4) dependent reaches age of majority
5) Medicare enrollment

Question 13

How are qualified LTC premiums that are paid by an employer taxed to the employee?

Answer 13

they are tax-free

Question 14

How are disability benefits received by an employee when the premiums are paid by an employer taxed to the employee?

Answer 14

the benefits are taxable to the employee

Question 15

How are disability benefits received by an employee as part of their compensation from their employer taxed to the employee?

Answer 15

the benefits are received tax-free

Question 16

Is the cash value in variable life policy sub-accounts subject to the creditors of an insurance company?

Answer 16

no

Question 17

If the surrender of a life insurance policy is a taxable event, how is it taxed?

Answer 17

as ordinary income

Question 18

Distributions from MECs are taxed how?

Answer 18

LIFO, ordinary tax rates

Question 19

What is the penalty if a distribution is taken from a MEC before 59 1/2?

Answer 19

10%

Question 20

A chronically ill person must do what with the money they receive from a viatical settlement in order for it to remain tax-free?

Answer 20

use it for LTC purposes

Question 21

What is the requirement to be classified as “terminally ill” for purposes of a viatical settlement?

Answer 21

must not have a life expectancy of more than 24 months

Question 22

A terminally ill person must do what with the money they receive from a viatical settlement in order for it to remain tax-free?

Answer 22

there are no requirements; the money is tax-free no matter how they spend it

Question 23

What happens if a viatical settlement company pays premiums on a policy they purchased?

Answer 23

the premiums paid become a part of their basis

Question 24

This rider waives future premiums if the insured becomes permanently disabled as a result of injury or illness prior to a specified age

Answer 24

waiver of premium rider

Question 25

This rider allows you to purchase additional insurance coverage in the stated period without the need for further medical examination

Answer 25

guaranteed insurability rider (results in higher premiums)

Question 26

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”

Answer 26

accidental death rider

Question 27

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

Answer 27

family income benefit rider

Question 28

This rider provides a death benefit in case a child dies before a specified age

Answer 28

child term rider

Question 29

What can you do with a child term rider if the child reaches maturity?

Answer 29

it can be converted into permanent insurance, often up to a multiple (4-5x) of the rider amount, without medical underwriting

Question 30

This rider allows the spouse of the insured to have a term life insurance rider under a permanent policy insuring their spouse

Answer 30

spouse term rider

Question 31

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

Answer 31

LTC rider

Question 32

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

Answer 32

terminal illness rider

Question 33

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

Answer 33

return of premium rider (insured will pay an additional premium for this rider)

Question 34

What are some common exclusions not covered by homeowners insurance?

Answer 34

1. flood
2. earthquake
3. termites
4. mold
5. nuclear hazards
6. war
7. government action

Question 35

What is the cross-purchase plan equation?

Answer 35

n x (n-1)

Question 36

What is the main disadvantage to an entity purchase agreement?

Answer 36

the surviving partner(s) do not get a step-up in basis

Question 37

Who pays the premium in an entity purchase agreement?

Answer 37

the business

Question 38

What is the order of options in purchasing a decedent’s interest with a wait-and-see agreement?

Answer 38

1) business
2) owner(s)
3) business (required if owners pass)

Question 39

What are the 3 forms of annuitization?

Answer 39

1) life only
2) period certain
3) refund certain

Question 40

Which form of annuitization provides the highest income, but ends at the death of the annuitant?

Answer 40

life only

Question 41

Do annuities provide a step-up at death?

Answer 41

no

Question 42

Taxable distributions from an annuity are always taxed at what income rates?

Answer 42

ordinary income

Question 43

What is the exclusion ratio (the tax-free portion) of an annuitization payment?

Answer 43

basis / expected payout

Question 44

What is the tax treatment of withdrawals from a non-qualified tax-deferred annuity?

Answer 44

LIFO

Question 45

Are annuity withdrawals subject to any penalties if taken before 59 1/2?

Answer 45

yes, 10%