Section 4 - R23 - Risk Management Individuals (Eco Capital, Retirement)

Question 1

Human Capital (Definition)

Answer 1

PV of future earnings and wages. Often dominang in a household economic balance sheet

Question 2

Human Capital (Formula)

Answer 2

HC = [p(st)w(t-1)(1+gt)] / (1+rf+y)^t

p(st) = prob survival @ t
w(t-1) = wage
gt = growth of wt
rf = risk free
y = adjustment for income volatility

Question 3

Financial Capital (Definition)

Answer 3

a. Personal: auto, cloths, furniture for consumption
b. Mixed: residence, artwork, collectibles
c. Investment: stocks, bonds etc

Question 4

Net Worth v. Net Wealth

Answer 4

Net Worth = Assets - Liabilities

Net Wealth = (HC + Investment + PV pension) - (Liabilities + PV Consumption Needs)

Question 5

Financial Stages of Life (List)

Answer 5

1. Education Phase
2. Early Career
3. Career Development
4. Peak Accumulation
5. Pre-Retirement
6. Early Retirement
7. Late Retirement

Question 6

Individual Risk Exposures (List)

Answer 6

1. Earnings Risk
2. Premature Death (Mortality) Risk
3. Longevity Risk
4. Property Risk
5. Liability Risk
6. Health Risk

Question 7

Insurance Role in Individual Risk Mgmt (Describe)

Answer 7

• Hedge against risk of premature death of an earner
• Provide liquidity to a beneficiary without the delay of probate
• Tax-shelted savings instrument

Question 8

Life Insurance Types (List)

Answer 8

Temporary: Cost is lower. No cash value. Premiums fixed or may increase

Permanent: Lifetime coverage, as long as premiums are paid.

Question 9

Permanent Life Insurance Types (List)

Answer 9

1. Whole Life
2. Universal

Question 10

Whole Life Insurance (Describe)

Answer 10

• Fixed Premiums
• Cash Value may be accessed
• Non-cancelable by insurance company
• Participating or not (value grows or not)

Question 11

Universal Life Insurance (Describe)

Answer 11

• More Flexible
• Policyholder can pay higher or lower premium
• Insurance stays in force as long as premiums are paid

Question 12

Insurance Riders (Definition)

Answer 12

Apólices Adicionais

Question 13

Common Riders (List)

Answer 13

• Accidental death
• Accelerated Death (diagnosed terminal)
• Guaranteed Insurability (right to purchase additional coverage)
• Waiver of Premium (if becomes disabled)

Question 14

Key Considerations in Life Insurance

Answer 14

1. Mortality Table
2. Discount rate
3. Valuation = Discount the FV of benefit by % of survival rate and discount rate

Question 15

Loading in Insurance (Definition)

Answer 15

Load = Other Expenses + Profit of Insurance Company

Both add to gross premium

Question 16

Life Insurance Needs Calculation Methods (List)

Answer 16

1. Human Life Value Method: Replace net contribution of the individual to family
2. Needs analysis method: meet financial needs of survivors

Question 17

Disability Income Insurance (Definitions)

Answer 17

1. Inability to perfor one’s regular occupation (Analista de IFs)
2. Inability to perform any regular occupation for which is suited (Bancário)
3. Inability to perform any occupation

Question 18

Disability Income Insurance (Characteristics)

Answer 18

• Premium is fixed
• Available individually and through employer
• Typically have provisions for partial (muito) and residual (pouco) disability
• Ceiling (up to a limit)

Question 19

Property Insurance Types (List)

Answer 19

1. Homeowner (fire, management costs)
2. Auto Insurance (collision v. comprehensive

Both have deductibles (franquia)

Question 20

Health Insurance Items (List)

Answer 20

• Deductibles
• Coinsurance
• Copayments
• Maximum out of pocket
• Maximum Yearly Benefit
• Pre-existing conditions

Question 21

Liability Insurance (Definition)

Answer 21

Personal Umbrella Liability

Question 22

Annuities Parties (List)

Answer 22

• Insurer
• Annuitant (receives benefit)
• Contract owner (purchases)
• Beneficiary

Question 23

Income Yield Rationale in Annuity (Explain)

Answer 23

↑ Life Expectancy = ↓ Income Yields
↓ Bond Yields = ↓ Income Yields

Question 24

Advanced Life Deferred Annuities (Explain)

Answer 24

• Hybrid between deferred and immediate
• Pure Longevity Insurance
• Buy now, payments begin late in life (80-85)

Question 25

Annuities Payment Methods (List)

Answer 25

1. Life: Payments cease @ death
2. Period-certain: 12 meses específicos
3. Life with period-certain: Mínimo estabelecido, inclusive se o beneficiário morrer
4. Life With Refund: Minimum = (PMT Inicial - Fees)
5. Joint Life: Pagamentos continuam enquanto alguém do casal for vivo

Question 26

Annuities Benefits (List)

Answer 26

1. Tax Deferred Growth:
2. Mortality Credits (earlier deaths provide return to the rest of the pool of annuitants)

Question 27

When to allocate investments to annuities? (Explain)

Answer 27

• If you expect longer than avg life expectancy (Terror do INSS)
• Greater pereference for lifetime income over other sources

Question 28

Insurance Program Options (List)

Answer 28

1. Risk avoid: Do not
2. Loss Prevention: Cameras
3. Loss Reduction: Sprinkler for Fire
4. Risk Transfer: Insurance
5. Risk Retention: No Insurance