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CFP Flashcards > Risk Management & Insurance > Flashcards

Risk Management & Insurance Flashcards

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1
Q

High Frequency, High Severity

A

Avoidance/Reduction

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2
Q

High Frequency, Low Severity

A

Reduction/Retention

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3
Q

Low Frequency, High Severity

A

Transfer

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4
Q

Low Frequency, Low Severity

A

Retention

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5
Q

HSA Last Month Rule

A

If eligible under HDHP on the first day of the last month of the tax year, may fund HSA as if eligible for the entire year

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6
Q

Can you continue to contribute to an HSA once enrolled in Medicare?

A

No

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7
Q

IRA Transfer to HSA

A
  • Once per lifetime
  • Only up to annual HSA funding limit
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8
Q

Employer’s contribution to HSA is (included in/not included in) annual HSA contribution limit

A

included in (not in addition to)

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9
Q

To be eligible for an HSA, you have to meet (either/both) minimum deductible and maximum out-of-pocket tests

A

both

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10
Q

HSA maximum out-of-pocket (includes/doesn’t include) deductibles and co-pays

A

includes

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11
Q

Health plans sponsored by employers with _____ or more employees in the prior year must offer COBRA coverage

A

20

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12
Q

Qualifying events for COBRA

A
  • death of covered employee
  • termination of employee for any reason other than gross misconduct
  • reduction of the employee’s hours
  • divorce or legal separation
  • for spouses, employee’s eligibility for Medicare
  • child ceasing to be an eligible dependent under the plan
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13
Q

The cost of COBRA cannot exceed _____% of the costs paid by the employer and employee.

A

102%

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14
Q

COBRA premiums are due __________

A

monthly

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15
Q

COBRA continuation period for termination (other than for gross misconduct)

A

18 months

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16
Q

COBRA continuation period for employee meeting definition of Social Security disability

A

29 months

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17
Q

COBRA continuation period after employee enrolls in Medicare

A

36 months

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18
Q

COBRA continuation period after divorce or legal separation

A

36 months

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19
Q

COBRA coverage period after death of employee

A

36 months

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20
Q

COBRA coverage period after loss of “dependent child” status

A

36 months

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21
Q

Medicare does not pay for __________ care.

A

custodial

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22
Q

Medicare pays for __________ __________ care.

A

skilled nursing

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23
Q

Medicare coverage for nursing home skilled care

A

Days 1-20: $0 co-pay for each benefit period
Days 21-100: patient pays $194.50 coinsurance/day
Days 100+: patient pays all costs

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24
Q

What is considered skilled care?

A

Doctor or nurse-provided care on a daily basis

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25
Q

LTCi Benefit Period

A

Time that LTCi benefits will be received; specific timeframe or pool of money options

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26
Q

LTCi Elimination Period

A

Waiting period before benefits become payable; available range from 0 to 365 days

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27
Q

LTCi Daily Benefit

A

Maximum amount that a policy will reimburse for daily LTC services; set at policy inception according to benefit schedule

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28
Q

LTCi Riders

A

Add-on features; inflation protection most important

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29
Q

LTCi Waiver of Premium

A

Insured does not have to pay premiums while receiving benefits

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30
Q

LTCi Renewability

A

Most individual LTCi policies are guaranteed renewable

31
Q

What is a “pool” for LTCi?

A

Pool = Daily Benefit $ x Period (# of days)

32
Q

Required Features of LTCi

A
  • Benefits payable only for qualified long-term care services
  • Contract must be guaranteed renewable
  • Does not pay or reimburse expenses reimbursable under Medicare
  • No cash surrender value
  • Policy dividends must be applied as a reduction in future premiums or increase in future benefits
  • Limitations and exclusions are prohibited
  • Cannot provide for skilled nursing care only or require prior hospitalization
  • Must have 2-year incontestable clause for misrepresentations
33
Q

Tax Benefits of LTCi

A
  • Benefits are received tax-free
  • Premiums paid are qualified medical expense for itemized deductions
  • Premiums can be paid from an HSA
  • Premiums paid by employers are tax-free to employees and benefits remain tax-free
34
Q

LTCi Benefits Triggers

A
  • 2 of 6 activities of daily living for 90+ days, OR
  • substantial cognitive impairment
    *Doctor’s certification needed for both
35
Q

6 Activities of Daily Living (ADL)

A

“BED COT”

  • bathing
  • eating
  • dressing
  • continence
  • on/off toilet
  • transferring
36
Q

What is Partnership LTCi?

A

Partnership between states and insurance companies
-Provides additional asset protection if LTCi benefit is exhausted and insured files for Medicaid
- Total amount paid under LTCi is added to Medicaid spend-down limit and protected

ex: $150k Partnerhip LTCi policy, insured can maintain $152k of assets and still qualify for Medicaid

37
Q

Before Medicare kicks in, you must spend down your assets to $__________

A

$2,000 (unless PLTCi policy)

38
Q

Any Occupation Disability Definition

A
  • benefits payable only if disabled severely enough that they can’t engage in any occupation
  • least favorable
  • least expensive
39
Q

Own Occupation Disability Definition

A
  • benefits payable if the policyholder is unable to perform his or her own occupation
  • most favorable
  • more expensive
40
Q

Modified Own Occupation Disability Definition

A
  • hybrid of own occupation and any occupation
  • policy maintains “own occupation” for a stated claim period then applies “any occupation” for the remaining period
41
Q

Social Security Disability Definition

A
  • toughest definition to qualify for
  • insured must be unable to perform any occupation and the medical condition is expected to last no less than 12 months or result in death
42
Q

What is the elimination period for Social Security Disability benefits?

A

5 months

43
Q

When an employer pays disability insurance premiums for an employee, benefits received are (tax-free/taxable)

A

taxable

44
Q

When an employee pays disability insurance premiums with after-tax dollars, benefits received are (tax-free/taxable)

A

tax-free

45
Q

When an employer pays disability insurance premiums for an employee but includes the premium amount as compensation to the employee, benefits received are (tax-free/taxable)

A

tax-free

46
Q

When an employee pays disability insurance premiums with pre-tax dollars, benefits received are (tax-free/taxable)

A

taxable

47
Q

Characteristics of Term Life Insurance

A
  • lowest premium at issue
  • no cash value
  • may be participating (dividends)
  • may be renewable
  • may be convertible to permanent
48
Q

Characteristics of Permanent Life Insurance

A
  • higher premium at issue
  • builds cash value
  • cash value accessible by loans or withdrawals
  • may be participating (dividends)
49
Q

Universal Life Insurance Option A & Option B

A

Option A: death benefit remains level
Option B: death benefit is face amount plus cash value

50
Q

Characteristics of Level Term Life Insurance

A
  • death benefit remains level over the guaranteed term
  • premiums increase upon expiration of initial guaranteed term
51
Q

Characteristics of Whole Life Insurance

A
  • guaranteed death benefit
  • guaranteed premiums
52
Q

Variable Life Insurance Subaccounts

A
  • not subject to creditors of the life insurance company
  • gives policy owners investment choices
53
Q

Life Insurance Non-Forfeiture Options

A
  • cash surrender value
  • extended-term option
  • reduced paid-up insurance
54
Q

Life Insurance Non-Forfeiture Options:
Cash Surrender Value

A

insurance company pays the cash value to the policy owner as a lump sum and the contract ends

55
Q

Life Insurance Non-Forfeiture Options:
Extended-Term Option

A
  • policy owner uses the cash value from their policy to place the policy on extended term insurance
  • cash value serves as a single premium to pay for term life insurance for as long as the cash value will support the stated death benefit at the insured’s current age
  • no residual cash value
  • insurance company may allow reinstatement of the permanent policy if the extended term has not expired
56
Q

Life Insurance Non-Forfeiture Options:
Reduced Paid-Up Insurance

A
  • policy’s cash value is used to buy a paid-up policy of the same type as the policy that lapsed
  • new policy will have a reduced death benefit but will retain a cash value that will grow throughout the life of the policy at a reduced rate
57
Q

Life Insurance Non-Forfeiture Options:
Single-Premium Annuity

A
  • only allowed by some insurers
  • convert the policy to an immediate single-premium annuity that will pay the policy owner an amount for the rest of their life based on the cash value of the lapsed or surrendered policy and the policy owner’s current age
58
Q

Life Insurance Non-Forfeiture Options:
Automatic Premium Loan

A
  • only allowed by some insurers
  • allows the insurer to automatically make a loan against the policy’s cash value for paying the overdue premiums provided the cash value is more than or equal to the premium amount due
  • any automatic premium loan is added to any other outstanding policy loan and the unpaid loan plus accrued interest is subtracted from the policy death benefit
59
Q

For a MEC, the 7-pay test is applied…

A
  1. at the inception of the policy, and
  2. if the policy experiences a material change
60
Q

Modified Endowment Contracts (MECs)

A
  • LIFO tax treatment (gains taxed first)
  • 10% penalty for loans/withdrawals before age 59 1/2
  • Once a MEC, always a MEC
  • MEC status only changes tax treatment of living distributions, not the death benefit (remains tax-free)
61
Q

Viatical Settlements: The insured must be either __________ ill or __________ ill.

A

chronically; terminally

62
Q

For a viatical settlement, terminally ill means:

A

Results in death within 24 months of the date of doctor’s certification

63
Q

For a viatical settlement, chronically ill means:

A

Unable to perform at least 2 of 6 activities of daily living for at least 90 days

64
Q

A viatical settlement provider must grant a _____-day cooling off period during which the __________ can rescind the viatical agreement.

A

15; viator

65
Q

Viatical settlement tax consequences to the insured (if terminally ill):

A

Amounts received under life insurance policy contract are excluded from gross income

66
Q

Viatical settlement tax consequences to the insured (if chronically ill):

A

Amounts received under life insurance policy contract are excluded from gross income to the extent they are used for long-term care services

67
Q

Viatical settlement tax consequences to the viatical settlement company:

A
  • Cash settlement amount paid plus any additional premiums become the company’s basis
  • At the insured’s death, the amount received in excess of basis is taxable to the company
68
Q

Buy-Sell: Cross Purchase
Advantages

A
  • Simple solution for businesses with few owners
  • Death benefit passes tax-free to surviving owner
  • Increase in basis for surviving owner
69
Q

Buy-Sell: Cross Purchase
Disadvantages

A
  • If there is a significant age difference between owners, younger owners will pay considerably more in premiums
  • Difficult to implement with higher number of owners
70
Q

Buy-Sell Cross Purchase
Number of Policies Needed

A

n x (n-1)
where n is the number of owners

71
Q

Buy-Sell Entity Purchase is also known as a:

A

Stock Redemption Plan

72
Q

Buy-Sell Entity Purchase
Advantages

A
  • Preferred solution for businesses with multiple partners
  • Death benefit passes tax-free to business
  • Business pays policy premiums
73
Q

Buy-Sell Entity Purchase
Disadvantages

A
  • No increase in cost basis for surviving owners

CFP Flashcards (9 decks)

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