Taxes and Field Underwriting Flashcards
Define unreimbursed medical expenses
Premiums paid by the employees that the employer or insurance plan has not reimbursed (these are tax deductible)
What percentage of a person’s adjusted gross income can a person under 65 deduct on their taxes (medical and LTC)
Any medical and dental expenses that exceed 10% of their adjusted gross income (the excess after 10% is tax deductible)
What percentage of a person’s adjusted gross income can a person over 65 deduct on their taxes (medical and LTC)
Any medical and dental expenses that exceed 7.5% of their adjusted gross income (the excess after 7.5% is tax deductible)
What are some expenses that a person cannot deduct on their taxes (3)
- Funeral and burial expenses
- OTC medications
- Cosmetic
Are disability income insurance premiums paid by the insureds tax deductible
No, premiums paid by the member are not tax deductible
Are premiums paid for business continuation policies (key employee, buy-out plans) tax deductible
No, they are not tax deductible even though the employer is paying the premiums
Are premiums paid for AD&D tax deductible if paid by the employee
No, they are not tax deductible
In order to deduct LTC policies on your taxes, what must the LTC policies include (4)
- Inflation protection
- Nonforfeiture benefits
- ADLs (only pay if member needs helps with 2 or more for at least 90 days)
- Cognitive impairments (coverage begins when needed)
Can a sole proprietor or partnership deduct premiums paid for medical expenses, dental insurance and LTC policies for their selves, their spouses and their dependents?
Yes they can
What are the requirements for a sole proprietor or partnership to be able to deduct medical expenses, dental insurance and LTC policies? (they must meet at least one of the following requirements) (4)
- The person is self-employed and had a net profit for the year
- The person is a partner with net earnings from self-employmnet
- The person used an optional method in figuring net income for the year
- The person received wages in 2013 from an S corporation and that person was a 2% or greater shareholder
How much of their premiums can a sole proprietor and partnership deduct on their taxes
100% up to the amount of their earned income for the year - a tax refund cannot be created under this rule
Are HRA contributions tax deductible for the employee
No, because HRA are funded solely by the employer, the employee cannot claim these contributions in their taxes
Can employers who pay for employee premiums deduct these amounts on their taxes
Yes
When are medical and dental expense benefits taxable (what your insurance plan pays to cover you - ie car accident)
The member will be taxed on anything paid in excess of the actual costs of care (ie. medical costs for a car accident cost $100, the insurance company paid $110, the member would be taxed on that $10)
Are individual (personal) disability policies taxable? (the benefits that you receive - do you have to pay taxes on these)
No these benefits are not taxable
Under a group disability policy, where the employer contributes part of the premium, what is the employee taxed on
The employee is taxed on the benefits received due to the employer’s contribution, for example, the employee pays 40% of their premium and the employer pays 60% of the premium, then the employee gets injured an needs their disability benefits, they will be taxed on the 60% of benefits received
If a person loses their job due to a permanent and full disability, and they are still received group disability income payments, what is the insurer required to do
Withold Social Security payroll taxes for the next 6 months (they take out SS taxes for the disability income that you receive for 6 months after your employment ended)
Define a capital gains tax
If a person who is insured under a a disability buyout (buy-sell) contract and they sell their business back to the company due to the disability then they could be taxed due to the sale of the business if they were to make a profit
Are benefits received by members under accidental death benefit (including dismemberment benefits) ever taxable
No these benefits are never taxable, no matter who pays for the benefits.
Under tax-qualified long term care policies, benefits received under a reimbursement policy, which pay for actual services (ie cover the cost of your therapist) are these benefits tax free
Yes these are tax free
Under tax qualified long term care policies, are benefits from an indemnity policy, which pay a predetermined amount each day ($300) tax free?
Yes these are tax free up to a certain daily allowance, like $330. Anything in excess will be taxed
When the producer is engaging in field underwriting, what are some of his responsibilities (3)
- Interview applicants
- Screen out unacceptable risks
- Complete the application
Define underwriting
Review the application and decide whether or not to issue the policy
What does the health insurance application include (3)
- Background information
- Medical history
- Agent’s report
What is the applicant’s written request to have the insurer issue a policy
Their application, which becomes apart of the policy if approved
If there is a reason to request further information from a physician who has treated the insured, what will they include in the application
They will include an Attending Physician’s Statement (APS) in the medical history section
What is included in the agent’s report (5)
- Agent’s signature
- How long they have known the applicant
- Details about any business arrangement in connection with the insurance that they are applying for
- How premiums will be apid
- Any other significant circumstances
At the time of the application, the applicant must be given a written notice of the insurer’s practices as well as a list of what they might be disclosing, what is included in that list (6)
- The types of people with access to personal information
- The kind of information to be collected
- The kind of information the insurer can receive without prior approval
- Sources of information
- Persons to whom information may be disclosed without approval
- How long the notice is valid
Define a express warranty
The seller’s promise or guarantee that a buyer relies on when they purchase an item
Define an implied warranty
Goods must reasonably conform to an ordinary buyers expectations
Are statements in an insurance application considered representations or warranties
They are considered representations
Are representations in an insurance application considered express warranty or implied warranty
Implied warranty
If there is a misrepresentation in an application, what can the insurer do
They can refuse payment of claims and cancel the policy, as long as the misrepresentation alters what premiums would have been charged
What are 3 things that make up a fraudulent statement
- Knowingly made the statement to cause harm or achieve a gain
- The statement was relied upon by the other party
- The results harm the other party
Define a conditional receipt
Coverage will be effective either the day of the receipt or the day of any required medical exam (whichever one comes later), but only if the application is approved at standard rates
Under a conditional receipt, what if the exam indicated that the insured was a substandard risk and they were injured
Then they would not be covered and the insurer would refund their policy
Define an unconditional receipt “binding receipt”
Coverage will always be effective from the date of the receipt and will continue as long as the application is accepted, if it is rejected, then coverage will be terminated on that date
Define an approval receipt
It will not provide coverage until the applicant is approved
Will coverage be effective if the applicant does not pay their premium, pays with an unsigned check or pays with a check that bounces
It will not be effective until they pay
When is a medical exam required to issue a policy
A medical exam may be required for medical policies when the amount of coverage is above a certain figure or the application indicates medical problems may exist
What does the MIB stand for
Medical Information Bureau
What is the MIB
It is a credit reporting agency, that houses medical information about applicants
Will the MIB state if an applicant has been rejected or denied based on medical information provided
No, the insurer is allowed to see their medical history from the MIB, but they are not allowed to reject a member on these finding solely, they have to do their own investigation (the MIB will not show whether or not a person has been rejected by other insurers)
Can the MIB disclose information to an insured
No, but they disclose information to the insured’s physician
Does a consumer reporting agency reveal their sources
No
What is the difference between a consumer report and an investigative consumer report
The investigative report involves interview’s with an applicant’s neighbors or acquaintances, about their lifestyle, character and reputation
What is needed in order for a consumer reporting agency to prepare or furnish an investigative consumer report
They have to receive notice that the consumer authorized the report
Can a consumer reporting agency produce a report that includes information that is a matter of public record that relates to an arrest, indictment, conviction, etc.
They can only produce this information if they have verified the accuracy of the information within the 30 day period ending on the date on which the report is furnished
In order for a consumer reporting agency to prepare or furnish an investigative consumer report that includes adverse information to the consumer, that was obtained through personal interviews, one of two things must happen
- The agency has to have followed reasonable procedures to obtain confirmation of the information from an additional source that has independent and direct knowledge of the information
- The person interviewed is the best possible source of the information
In order to prevent adverse selection, where will the member’s application be submitted
To an underwriting process
Define morbidity tables
What health insurers use to determine claim costs and the premiums needed to cover those costs (takes into account a persons age and sex)
When setting rates, what are the 3 goals of the insurer
- Adequate
- Reasonable
- Equitable
What things do health insurance underwriters look for
They look for chronic/ongoing conditions and catastrophic conditions
Are disabled employees and their dependents given the same rights of conversion to an individual contract of insurance as an able-bodied employee
Yes
How many months is an extension of benefits of a former carrier
Typically 3-12 months
What overrides any pre-existing conditions
No loss- no gain legislation, that when health insurance is replaced ongoing claims under the former policy must continue to be paid
Disabled employees that have been terminated, but who still have claims, have what effect on the employer
They are still included in their group rating structure
What 2 things can underwriters not discriminate against you on
- If you have AIDS
- Genetic characteristics
After the underwriter has reviewed the application, what 4 things can they do
- Decline coverage
- Exclude coverage for pre-existing conditions with a policy rider
- Modify coverage by requiring longer probationary period or a higher deductible
- Charging an additional premium to reflect greater exposure to loss
What are 3 classifications of applicants
- Preferred risk (superior risk - lower premium)
- Standard risk (average risk - rated from manuals)
- Substandard risk (below average risk)
For substandard risk, what can be added to their policies (4)
- Additional premium
- Additional percentage of premium
- Step up basis for age that rates an individual at an older age
- Tabular rating that classifies variances from standard rates
Will disability policies cover income that is passively received by the insured (royalties and rents)
No, disability policies will not cover income that is passively received, because this income will be available regardless of disability
Will disability policies be issued to individuals who do not have earned income
No, they need an income in order to receive a policy
What are disability premiums based on (4)
- Occupation
- Monthly benefit requested (ie 60-80% of disability gross income)
- Length of elimination period
- Benefit period
In reviewing group health plans, what do insurers look at (4)
- Industry
- Location
- Zip code
- Carrier history
What do insurance companies do with the preiums
They invest them
What do insurance companies assume with invested premiums
- They will earn a specific net rate of interest
- A full year’s interest will be earned on each premium that is paid
When does an insurer believe that all premiums are paid
At the beginning of the year
When does an insurer believe that all claims are paid
At the end of the year
Define earned premiums
Portion of the premiums paid by the insured for which the insurer has already provided protection
Define unearned premiums
Portion of the premium that applies to coverage for the remainder of the year
If premiums are paid annually, how do the earned and unearned stack up
Premiums are earned at the end of April (four months) and then the remaining 8 months are unearned
Who is the policy delivered too
The applicant or the producer
What must the producer do if he receives the policy
He must give it to the member and go over it with them (he cannot keep it in his possession)
What if the insurer modified or amended the policy so as to offer lower benefits or higher premiums, when would the policy be in force
The policy would be in force once the application was explained to the member and they accepted and paid their additional premium
What if the initial premium was paid, however, there were changes in the insured’s health, would the coverage still be in effect upon delivering the policy
Yes, coverage would still be in effect
What if the policy is delivered to the producer and the applicant’s health changed for the worse
Then the producer should refuse the premium, not deliver the policy and then send the new information back to the insurer for further review
When must the applicant have an insurable interest
They must have an insurable interest
Does the insurable interest have to remain after the policy has been issued
No, you can get rid of your insurable interest once the policy is in effect
When a policy will replace an existing policy, what must be disclosed with the new policy (4)
- Whether the new policy will count enrollment under the existing policy toward meeting its waiting period
- Whether the new policy will credit expenses incurred under the existing policy to its deductibles
- Cover existing health conditions
- Impose limits on specific benefits
Under the no loss no gain statues what may be required of the replacing policy (4) BIG
- That they cannot exclude coverage for pre-existing conditions beyond a certain period
- That they limit the application of a pre-existing condition exclusion to a condition for which treatment was sought during a period (ie 6 months) immediately prior to issuance of the policy
- That they continue payment for any ongoing claims that were covered under the previous policy
- That they credit the period of coverage under the existing policy toward any new waiting period, elimination period or probationary period for a pre-existing condition
When replacing a policy what should the applicant be advised of (3) BIG
- Benefits, exclusions and limitations in a new policy may reduce benefits provided by the original policy
- A new contestability period will provide a basis for the insurer to deny future claims and refund the insured’s premium as though the policy had never been in force, if the applicant fails to include all material medical information on the application
- A new customer (inspection) report, medical exam and other underwriting actions may result in a higher premium rate than that paid for the original policy
If the producer does not adequately analyze the replacement coverage, then they could be in big trouble if the replacement policy ends in these 4 things
- A loss of coverage
- A reduction in benefits despite the same or a greater premium
- The need to satisfy a new deductible after the previous one had been satisfied
- Losses incurred by the applicant because the existing policy was cancelled and application approval was delayed or denied
How does the insurance company discourage the replacement of policies within the same insurer
They may limit the producer’s commissions to a percentage of the increase in premium, then allow for full commission
Can the adult contracting with the minor void the contract
No, only the minor can void once they reach the age of majority
Define a competent party
They are alive, sane and authorized to contract
Define legal object in a contract
What each party is promising to do, must be legal
What is the offer and acceptance in a contract
The offer is the application and the acceptance is the policy
If the policy is issued other than as requested, then what is the offer and what is the acceptance
The offer would be the policy and the acceptance is the premium payment
What is the insured’s consideration in a contract
The application and the premium payment
What is the insurer’s consideration in a contract
Promise to pay claims
Define an aleatory contract
A contract in which the performance of one or both parties is contingent upon the occurrence of a particular event
Define an insurable interest
When a person stands to suffer a loss
Define conditional in a contract
The insurer must pay only if a specific and uncertain event occurs
What is the difference between an insured and the insurer in a unilateral contract
Only one party makes a promise, the insured promises to pay claims and can be sued otherwise, however, the insured does not promise to pay claims and cannot be sued if they don’t
Define adhesion in a contract
The policy is offered as a take it or leave it basis (if you don’t like it, then go and find a different policy)
Can you transfer a contract to cover another person
No, contracts are personal and you cannot move it to cover different people (you are insuring the person not the car)
What does the right to rescind state
That the insurer can terminate their contract anytime prior to the commencement of an action on the contract (ie paying claims)
What does contract law govern
It states what a person can and cannot include in a contract and what the remedies are if a party breaches the terms of the agreement
What does Tort law cover
They govern situations where one person has harmed or injured another person, regardless of whether the act was intentional or through negligence.
The employee pays all of their premiums for their personal disability income policy, are the benefits that they receive taxable?
No
The employer pays all of the premiums for the employee’s disability policy, are the benefits that the employee receives taxable?
Yes
Define concealment
Failure to disclose known facts that would be material to an insurance application
If a person is guilty of concealment, then what could the insurer do
They can rescind the policy as long as it’s within the 2 year contestability window
Does there need to be an intent to defraud in concealment
No, concealment could be with or without an intent to defraud
What if the concealment was done to intentionally commit fraud
Then the insurer can deny claims and cancel the policy at anytime, they don’t have to be within the 2 year window
When a policy owner offers their consideration in the form of an application and premium, how much premium do they pay
Only the first month, they do not promise to pay all premiums only the first one
If an applicant wants to correct an application, he must do what
He has to initial any changes that he makes
If a warranty is found to not be true, could the policy be voided regardless if the statement impacts risk
Yes, the policy could be voided if the warranty is found not to be true
Are premiums paid by individuals for medical and dental insurance deductible
Yes
Are premiums paid by individuals for disability income insurance deductible
No
Can an insurer rescind a policy if the representations in a policy are found to not be true
No, they can only rescind if the information is false and material
Are group accidental death and dismemberment benefits tax free
Yes you do not have to pay taxes on these benefits, regardless of who paid for the premiums
