Risk Management and Insurance Planning Flashcards
1
Q
The possibility of suffering harm, loss or injury
A
Risk
2
Q
The cause of a loss
A
Peril
3
Q
Something that increases the potential for a loss
A
Hazard
4
Q
What are the three basic rules of risk management?
A
- Don’t risk more then you can afford to lose
- Consider the odds
- Don’t risk a lot for a little
5
Q
Risk control technique that seeks eliminate areas of risk
A
Risk avoidance
6
Q
Risk control technique that seeks to limit the risk or make it less likely or less severe
A
Risk reduction
7
Q
Risk financing technique in which the risk the kept because the risk of loss is small or the cost of risk transferring is high
A
Risk retention
8
Q
Risk financing technique that uses insurance, waivers, or subcontracting
A
Risk transfer
9
Q
High severity and high frequency events should be managed by
A
Risk avoidance/reduction
10
Q
Low severity and high frequency events should be managed by
A
Risk retention/reduction
11
Q
High severity and low frequency events should be managed by
A
Risk transfer
12
Q
Low severity and low frequency events should be managed by
A
Risk retention
13
Q
What are three advantages to self-insuring?
A
- Reduces costs by eliminating or reducing insurance company profit
- Eliminates selling costs
- Avoids state premium taxes
14
Q
What are three disadvantages to self-insuring?
A
- Must be objective about the risks the business can afford
- May have to pay higher income tax (premiums are tax deductible)
- Only save the company money is the company can provide the same type of services at a lower cost
15
Q
What are the four elements of an insurable risk?
A
- Law of large numbers - must be a large number of homogenous exposure units to make losses reasonably predictable
- Loss must be definite and measurable
- Loss must be fortuitous or accidental
- Loss must not be catastrophic to the company
16
Q
This says that the interested party must suffering a financial loss if the insured loss occurs
A
insurable interest
17
Q
How is the actual cash value of the loss calculated?
A
replacement cost minus depreciation
18
Q
This is the maxium that will be paid when the insured loss occurs
A
policy limits or face value
19
Q
This is a portion of insured losses the insured is expected to pay before the insurance company pays
A
deductible
20
Q
This is the right of an insurance company that has paid for a loss to recover its payments if it is determined that a different insurance company or person is responsible for the loss and is required to pay
A
subrogation
21
Q
This type of agent represents several companies, though they may favor a few
A
independent agent
22
Q
This type of agent represents only one company
A
captive agent
23
Q
This is an individual who is licensed with and can work with many insurers; they represent the insured and cannot bind the insured to an insurance contract
A
Brokers
24
Q
This person represents the insurance company and has authority to bind the insurer
A
Agent
25
Regulations for insurers are set by
State insurance departments
26
This organization provides a series of model insurance laws for states to adopt
National Association of Insurance Commissioners (NAIC)
27
In this type of contract, the outcome is controlled by chance and the dollars that change hands are of substantially unequal amounts
aleatory
28
This says that is you write a contract, you are stuck with the ambiguities you created
adhesion
29
This says that the insurance company pays on the condition that premiums are paid and a covered loss occurs
conditional
30
This is the idea that when a person suffers a loss, they should be made whole but should not profit
indemnity
31
In this type of contract, the nature of the risk is related to the individual who owns the contract
personal contract
32
In this type of contract, only one party to the contract can enforce the contract in a court of law
unilateral contract
33
What are the legal requirements for an enforceable contract?
1. offer and acceptance
2. consideration
3. legal object
4. competent parties
5. legal form
34
In this type of contract, one party has the option to void but the other is bound?
Voidable contract - e.g. a contract with a minor
35
This states that a party by his or her own actions has voluntarily relinquished or surrendered a known right. It can be used to hold insurance companies to contracts they have accepted.
Doctrine of waiver
36
This prevents a party from asserting a right to which he/she would otherwise be entitled where, because of the party's own actions, he/she misled someone who relied on this understanding to his/her detriment
Doctrine of estoppel
37
When someone causes physical, emotional, or financial harm to another
tort
38
What constitutes negligence?
1. a duty was owed
2. the duty was breached
3. there were actual damages
4. there was proximate cause
39
This is the standard imposed when a person or organization is held responsible for any damages, even when there has been no negligence in the usual sense
absolute liability (strict liability)
40
This reduces the defendent's liability in some proportion based on the injured party's contribution to the total negligence
comparative negligence
41
If any negligence on the part of the injured party contributes to the injury, it absolves the other party of liability
contributory negligence
42
What duties does an insured have in the event of a loss
1. notice of loss
2. protection of property
3. inventory
4. evidence
5. proof of loss
6. assistance and cooperation
7. appraisal
43
This tracks 12 financial ratios for insurance companies
NAIC watchlist
44
On a homeowner's policy, this section insures the dwelling, including additions or other attached structures
Coverage A
45
On a homeowner's policy, this section insures all other structures on the premise (detached structures)
Coverage B
46
On a homeowner's policy, this insures general personal property
Coverage C
47
On a homeowner's policy, this provides loss-of-use coverage, expenses insurred while dwelling is uninhabitable due to damage cause by peril
Coverage D
48
On a homeowner's policy, this provides comprehensive liability insurance
Coverage E
49
On a homeowner's policy, this covers medical payments to others, claim expeses, and damage to property of others
Coverage F
50
Under this definition, if a peril is not excluded, it is covered
Open peril
51
What perils are coverd by basic form?
1. Hail
2. Aircraft
3. Riot and civil commotion
4. Vandalism and malicious mischief
5. Vehicles
6. Volcanic erruption
7. Explosion
8. Smoke
9. Theft
10. Windstorm
11. Fire
12. Lightning
HARVVVEST WFL
52
What perils are coverd by broad form?
1. perils of basic
2. falling objects
3. weight of snow, ice, or sleet
4. collapse of building
5. accidental discharge or overflow of water or steam
6. damage from artificially generated electrical current
7. explosion of steam or hot water system
8. freezing of plumbing, heating, and air conditioning systems or domestic appliances
53
This policy provides broad form coverage for parts A, B, C, and D
HO2
54
This policy provides open peril coverage for A, B, and D and broad form coverage for C
HO3
55
This policy provides only basic form coverage
HO1
56
This policy is a renter's policy and provides broad form coverage for C and D
HO4
57
This policy provides open peril coverage
HO5
58
This policy can be added to an HO3 to provide open peril coverage for personal property
HO15 endorsement
59
This policy is used when the cost to replace a home exceeds its FMV. It is offered on a cash value basis or on a repair and functional replacement cost basis. It only covers basic perils.
HO8
60
This policy covers condiminiums and offers broad form coverage for A, C, and D
HO6
61
This requires a home to be insured for at least 80% of its replacement cost in order for partial losses to be covered completely
coinsurance provision
62
What is the coinsurance penalty formula?
(amount of insurance/amount of insurance required) x loss - deductible = amount paid by insurance company
63
What will the insurance company cover for a partial loss if the property is insured for less than 80% of its replacement cost?
Replacement cost - depreciation (ACV) or coinsurance penalty formua, whichever is less
64
Who is covered by the medical payments provision of a homeowner's insurance policy?
Someone not living at the property who is injured there due to an act of the insured
65
This type of policy protects personal property that is in transit or can be transported (e.g. jewelry, ski equipment, coin collection, etc.)
Inland Marine/Personal Property Floater
66
What are the three parts to split limit auto insurance?
bodily injury per person/bodily injury per accident/property damage
67
This insurance provides protection for physical harm causd by unintended consequences, errors in judgement, or mistakes
malpractice insurance
68
This type of insurance provides protection for fiscal harm to a client
Errors and omissions insurance
69
This type of business insurance is intended for large busineses
commercial package policy
70
This type of business insurance is intended for small businesses
business owner's policy
71
This protects against non-automotive liability that does not involve injuries to employees
Basic Commercial General Liablity
72
When using the personalized needs approach for life insurance, what are the four areas to consider?
1. Liabilities
2. Income replacement
3. Final expenses
4. Education funding
LIFE
73
This type of life insurance allows the owner to choose the number of years the death benefit is guaranteed. Premiums can be changed (within a range) to lengthen or shorten the guarantee period.
Adjustable life
74
If a policy becomes a MEC, loans and withdrawals become subject to
taxes and penalties
75
This types of life insurance is considered to be unbundled
Universal Life
76
What are the three parts to a UL policy?
1. mortality charge
2. expense charges
3. interest
77
This type of life insurance policy has the cash value portion tied to a specific market index
Equity Indexed Universal Life
78
This type of life insurance policy has cash value that is not guaranteed but is invested in a separate account and fixed premiums. Death benefit is guaranteed.
Variable Life
79
This type of life insurance policy guarantees only the mortality rate and the right to keep the policy in force.
Variable Universal Life
80
How is basis calculated in a life insurance policy?
amount paid - (prior dividends + withdrawals)
81
This type of life insurance policy is good for a client who needs flexibility. Whose situation is likely to change in the near future.
Universal Life
82
This type of life insurance policy is good for a clients who is aggressive in their risk tolerance.
Variable Universal Life
83
This type of life insurance policy is good for a client with a limited budget.
Term
84
This type of life insurance policy is good for a client who likes gurantees.
Whole Life
85
This type of life insurance policy is good for a client who wants a guarantee to never lose cash value but wants opportunity to participate in market upturns
Indexed Universal Life
86
Under this beneficiary system for life insurance, death benefits are distributed to all surviving members of the primary beneficiary class first and if all of the primary beneficiaries predecease the insured, benefits would then go to the secondary beneficiaries.
Per Capita
87
Under this beneficiary system for life insurance, each primary beneficiary receives their share and any portion that would go to predeceased heirs is divided equally among the secondary beneficiaries.
Per Capita by Generation
88
Under this beneficiary system for life insurance, each primary beneficiary's allotted share remains within their family unit.
Per Stirpes
89
Once a life insurance policy has been issued, the insurance company has no more than __ years to determine if there is any reason it should not have been issued.
two
90
This is the incidence of losing one's health through illness or injury
morbidity
91
In this form of annuity, income payments to the named beneficiary start within a year after the contract is funded.
Immediate annuity
92
In this type of annuity, payments will not start until a later date, usually a year or more into the future.
Deferred annuity
93
This type of annuity gurantees a minimum interest rate.
Fixed interest annuity
94
This type of annuity is invested in various separate accounts that are similar to mutual funds.
Variable annuity
95
This type of annuity has a guaranteed minimum interest rate (usually 0%) and offers the potential for market-based returns.
Equity indexed annuity
96
Most annuities allow ___% to be withdrawn without penalty.
10%
97
How are annuity withdrawls taxed with respect to earnings?
taxed as orginary income on a LIFO basis until all earnings have been withdrawn; taxable withdrawals before age 59 1/2 will be subject to a 10% penalty
98
If an annuitant dies before receiving a return of all the basis, how is the remaining amount handled?
It can be taken as a deduction on their final tax return
99
Do annuities receive a step-up in basis upon death?
no
100
Under this type of deductible, when a family member meets the individual deductible, his or her medical expenses transition into the coinsurance portion of the plan.
Embedded deductible
101
Under this type of deductible, the family deductible must be reached before the coinsurance portion is reached.
Non-embedded deductible
102
A fixed fee for each visit to a healthcare provider's office.
Copayments
103
Splitting the cost of payment between the insurance company and the insured
Coinsurance
104
The limit the insured will pay out of pocket for care.
Maximum out-of-pocket
105
In this type of plan, the client has total choice of providers without payment discrimination.
Fee for service (indemnity plan)
106
This type of plan pays a daily benefit when the insured is sick, in the hospital, or disabled.
Daily Benefits Plan
107
This type of healthcare plan offers the services of its own participating physicians and hospital(s) to the plan's subscribers. Subscribers can only use the physicians that are part of the network. There are very little out of pocket costs.
Health Maintenance Organization (HMO)
108
This type of healthcare plan has a group of providers that have agreed to be part of the plan. The plan pre-negotiates charges and fees for services, usually at discounted rates.
Preferred Provider Organization (PPO)
109
This type of healthcare plan is a hybrid between an HMO and a PPO. The insured must designate a primary care physician and use them for referrals to specialists.
Point of Service (POS)
110
This type of healthcare plan is similar to an HMO but through an insurance company. Only care received from contracted providers is covered.
Exclusive Provider Organization (EPO)
111
After you get married, how many days do you have to change your health insurance?
60 days
112
After a divorce, how long may you use COBRA if you were on your spouse's health insurance?
36 months
113
If you were covered by your deceased spouse's health insurance, how long may you remain on COBRA after their death?
36 months
114
If you become disabled and were on your employer's health insurance, how long may you remain on COBRA?
29 months
115
If you lose or change your job, how long may you remain on COBRA?
18 months
116
After a birth, how long does a parent have to enroll their child on their health insurance?
30 days
117
Children may be covered by their parents' health insurance until what age?
26
118
At what age does a person become eligible for Medicare?
65
119
After a qualifiying event, how many days do you have to elect COBRA?
60 days
120
Under this law, individuals may enroll for healthcare coverage in marketplaces independent of preexisting conditions.
Patient Protection and Affordable Care Act (PPACA)
121
This is the federal healthcare program for those persons age 65 and older, certain disabled persons who qualify for Social Security Disability Insurance after 24 months, and anyone who has end-stage renal (kidney) disease.
Medicare
122
What is the initial enrollment period for Medicare?
3 months before the month of 65th birthday, birth month, 3 months after the month of 65th birthday (7 months total)
123
What is the special enrollment period for Medicare?
8 months after employment coverage ends
124
What is the penalty for missing the Medicare enrollment period?
10% penalty for each 12 month period you could have had Part B but didn't sign up. This penalty is permanent.
125
This part of Medicare covers inpatient hospital care, post-hospital extended care in a skilled nursing facility, post-hospital home health services, and hospice care
Part A
126
This part of Medicare covers physicians and other outpatient treatments, certain preventative services, screening tests, and home dialysis, etc.
Part B
127
This part of Medicare provides four program alternatives: Medicare HMO, PPO, private fee-for-service, and Medicare special needs plans
Part C (Medicare Advantage Plan)
128
This part of Medicare covers prescription drug coverage
Part D
129
How does one pay for Medicare Part A?
There are deductibles and copays but no premium
130
Do Medicare Advantage Plans cover prescription drugs?
Yes
131
A healthcare spending account that is funded through voluntary salary reduction agreements with the employer. The amount of contribution is chosen at the beginning of the year and the total amount is available immediately. It is use it or lose it.
Flexible Spending Arrangements
132
How much of unused funds in an FSA can rollover to the next year?
$500
133
This type of healthcare savings account allows individuals to pay for current health expenses on a tax-free basis and save for future qualified medical and retiree health expenses on a tax-free basis.
Health Savings Account
134
What are the requirements to open an HSA?
1. Must be enrolled in a high deductible health plan
2. Must not be covered by another non-HDHP including Medicare
3. Cannot be claimed as a dependent
135
What is the penalty for withdrawls from an HSA for non-medical expenses?
20%
136
Under this definition of disability, the insured is totally disabled if unable to perform the duties pertaining to any gainful occupation
Any occupation
137
Under this definition of disability, the insured is totally disabled if unable to engage in the principal duties of his or her own occupation.
Own Occupation
138
Under this definition of disability, the insured is considred totally disabled if unable to engage in any occupation for which the insured is reasonably fitted by education, training, experience, and (possibly) prior economic status
Modified Own Occupation
139
Under this provision for disability insurance, the insured can renew the policy for the full term and the insurance company cannot change the premium from what is stated in the contract.
Noncancelable
140
Under this provision for disability insurance, the insured has the right to renew the policy to the age specified and the company cannot raise the premium unless it makes the change for an entire policy class
Guaranteed renewable
141
Under this provision for disability insurance, the company can disallow renewal of a policy under certain circumstances
Conditionally renewable
142
Under this provision for disability insurance, the policy is renewable at the option of the company and the company may give notice and cancel the policy at any time
Nonguaranteed continuation
143
What are the three non-forfeiture options for life insurance?
1. Cash
2. Extended-term
3. Paid-up reduced amount
144
What are the five life insurance dividend options?
1. Cash
2. Paid-up additions
3. Accumulate with interest
4. Premium reduction
5. One-year term
145
What are the six life insurance settlement options?
1. Cash
2. Refund options
3. Period certain and life
4. Pure life or single life
5. Specified period
6. Specified income
146
What is stop loss?
the maxium out-of-pocket cost the insured will have to pay
147
What is stop loss limit?
Amount of expenses after the dedutible that are split between the insurer and the insured
148
Is stop loss better for the insured or the insurer?
the insurer
149
Is stop loss limit better for the insured or the insurer?
the isured
150
What is the date after which annuitie are taxed as LIFO?
8/13/1982
151
What is the date after which MECs are established?
6/21/1988
152
Are long term care premiums deductible?
yes, partially, depending on the insured's age and the extent qualified medical exepneses exceed 10% of AGI
153
The right of an insurance company to seek reimbursement from the person or entity legally responsible for an accident after the insurer has paid money to the insured.
subrogation
154
Impact with an animal will be covered by ________ dedutible.
other than collision
155
Impact with a tree will be covered by ___________ deductible.
collision
156
When does the window to elect COBRA coverage begin?
When notice is received from the plan administrator
157
How is the exclusion ratio for an annuity calculated?
investment in contract / expected return
158
Can life insurance companies guarantee future dividends?
No
159
What type of life insurance company issues participating policies?
mutual company
160
Does Medicare provide adequate long term care coverage?
no
161
Long term care insurance must provide coverage for at least how long?
12 months
