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Disability Income Insurance > Taxes and Field Underwriting > Flashcards

Taxes and Field Underwriting Flashcards

1
Q

Define unreimbursed medical expenses

A

Premiums paid by the employees that the employer or insurance plan has not reimbursed (these are tax deductible)

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2
Q

What percentage of a person’s adjusted gross income can a person under 65 deduct on their taxes (medical and LTC)

A

Any medical and dental expenses that exceed 10% of their adjusted gross income (the excess after 10% is tax deductible)

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3
Q

What percentage of a person’s adjusted gross income can a person over 65 deduct on their taxes (medical and LTC)

A

Any medical and dental expenses that exceed 7.5% of their adjusted gross income (the excess after 7.5% is tax deductible)

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4
Q

What are some expenses that a person cannot deduct on their taxes (3)

A
  • Funeral and burial expenses
  • OTC medications
  • Cosmetic
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5
Q

Are disability income insurance premiums paid by the insureds tax deductible

A

No, premiums paid by the member are not tax deductible

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6
Q

Are premiums paid for business continuation policies (key employee, buy-out plans) tax deductible

A

No, they are not tax deductible even though the employer is paying the premiums

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7
Q

Are premiums paid for AD&D tax deductible if paid by the employee

A

No, they are not tax deductible

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8
Q

In order to deduct LTC policies on your taxes, what must the LTC policies include (4)

A
  • 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)
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9
Q

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?

A

Yes they can

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10
Q

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)

A
  • 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
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11
Q

How much of their premiums can a sole proprietor and partnership deduct on their taxes

A

100% up to the amount of their earned income for the year - a tax refund cannot be created under this rule

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12
Q

Are HRA contributions tax deductible for the employee

A

No, because HRA are funded solely by the employer, the employee cannot claim these contributions in their taxes

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13
Q

Can employers who pay for employee premiums deduct these amounts on their taxes

A

Yes

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14
Q

When are medical and dental expense benefits taxable (what your insurance plan pays to cover you - ie car accident)

A

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)

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15
Q

Are individual (personal) disability policies taxable? (the benefits that you receive - do you have to pay taxes on these)

A

No these benefits are not taxable

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16
Q

Under a group disability policy, where the employer contributes part of the premium, what is the employee taxed on

A

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

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17
Q

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

A

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)

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18
Q

Define a capital gains tax

A

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

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19
Q

Are benefits received by members under accidental death benefit (including dismemberment benefits) ever taxable

A

No these benefits are never taxable, no matter who pays for the benefits.

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20
Q

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

A

Yes these are tax free

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21
Q

Under tax qualified long term care policies, are benefits from an indemnity policy, which pay a predetermined amount each day ($300) tax free?

A

Yes these are tax free up to a certain daily allowance, like $330. Anything in excess will be taxed

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22
Q

When the producer is engaging in field underwriting, what are some of his responsibilities (3)

A
  • Interview applicants
  • Screen out unacceptable risks
  • Complete the application
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23
Q

Define underwriting

A

Review the application and decide whether or not to issue the policy

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24
Q

What does the health insurance application include (3)

A
  • Background information
  • Medical history
  • Agent’s report
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25
Q

What is the applicant’s written request to have the insurer issue a policy

A

Their application, which becomes apart of the policy if approved

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26
Q

If there is a reason to request further information from a physician who has treated the insured, what will they include in the application

A

They will include an Attending Physician’s Statement (APS) in the medical history section

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27
Q

What is included in the agent’s report (5)

A
  • 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
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28
Q

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)

A
  • 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
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29
Q

Define a express warranty

A

The seller’s promise or guarantee that a buyer relies on when they purchase an item

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30
Q

Define an implied warranty

A

Goods must reasonably conform to an ordinary buyers expectations

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31
Q

Are statements in an insurance application considered representations or warranties

A

They are considered representations

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32
Q

Are representations in an insurance application considered express warranty or implied warranty

A

Implied warranty

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33
Q

If there is a misrepresentation in an application, what can the insurer do

A

They can refuse payment of claims and cancel the policy, as long as the misrepresentation alters what premiums would have been charged

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34
Q

What are 3 things that make up a fraudulent statement

A
  • 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
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35
Q

Define a conditional receipt

A

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

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36
Q

Under a conditional receipt, what if the exam indicated that the insured was a substandard risk and they were injured

A

Then they would not be covered and the insurer would refund their policy

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37
Q

Define an unconditional receipt “binding receipt”

A

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

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38
Q

Define an approval receipt

A

It will not provide coverage until the applicant is approved

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39
Q

Will coverage be effective if the applicant does not pay their premium, pays with an unsigned check or pays with a check that bounces

A

It will not be effective until they pay

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40
Q

When is a medical exam required to issue a policy

A

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

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41
Q

What does the MIB stand for

A

Medical Information Bureau

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42
Q

What is the MIB

A

It is a credit reporting agency, that houses medical information about applicants

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43
Q

Will the MIB state if an applicant has been rejected or denied based on medical information provided

A

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)

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44
Q

Can the MIB disclose information to an insured

A

No, but they disclose information to the insured’s physician

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45
Q

Does a consumer reporting agency reveal their sources

A

No

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46
Q

What is the difference between a consumer report and an investigative consumer report

A

The investigative report involves interview’s with an applicant’s neighbors or acquaintances, about their lifestyle, character and reputation

47
Q

What is needed in order for a consumer reporting agency to prepare or furnish an investigative consumer report

A

They have to receive notice that the consumer authorized the report

48
Q

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.

A

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

49
Q

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

A
  • 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
50
Q

In order to prevent adverse selection, where will the member’s application be submitted

A

To an underwriting process

51
Q

Define morbidity tables

A

What health insurers use to determine claim costs and the premiums needed to cover those costs (takes into account a persons age and sex)

52
Q

When setting rates, what are the 3 goals of the insurer

A
  • Adequate
  • Reasonable
  • Equitable
53
Q

What things do health insurance underwriters look for

A

They look for chronic/ongoing conditions and catastrophic conditions

54
Q

Are disabled employees and their dependents given the same rights of conversion to an individual contract of insurance as an able-bodied employee

A

Yes

55
Q

How many months is an extension of benefits of a former carrier

A

Typically 3-12 months

56
Q

What overrides any pre-existing conditions

A

No loss- no gain legislation, that when health insurance is replaced ongoing claims under the former policy must continue to be paid

57
Q

Disabled employees that have been terminated, but who still have claims, have what effect on the employer

A

They are still included in their group rating structure

58
Q

What 2 things can underwriters not discriminate against you on

A
  • If you have AIDS

- Genetic characteristics

59
Q

After the underwriter has reviewed the application, what 4 things can they do

A
  • 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
60
Q

What are 3 classifications of applicants

A
  • Preferred risk (superior risk - lower premium)
  • Standard risk (average risk - rated from manuals)
  • Substandard risk (below average risk)
61
Q

For substandard risk, what can be added to their policies (4)

A
  • 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
62
Q

Will disability policies cover income that is passively received by the insured (royalties and rents)

A

No, disability policies will not cover income that is passively received, because this income will be available regardless of disability

63
Q

Will disability policies be issued to individuals who do not have earned income

A

No, they need an income in order to receive a policy

64
Q

What are disability premiums based on (4)

A
  • Occupation
  • Monthly benefit requested (ie 60-80% of disability gross income)
  • Length of elimination period
  • Benefit period
65
Q

In reviewing group health plans, what do insurers look at (4)

A
  • Industry
  • Location
  • Zip code
  • Carrier history
66
Q

What do insurance companies do with the preiums

A

They invest them

67
Q

What do insurance companies assume with invested premiums

A
  • They will earn a specific net rate of interest

- A full year’s interest will be earned on each premium that is paid

68
Q

When does an insurer believe that all premiums are paid

A

At the beginning of the year

69
Q

When does an insurer believe that all claims are paid

A

At the end of the year

70
Q

Define earned premiums

A

Portion of the premiums paid by the insured for which the insurer has already provided protection

71
Q

Define unearned premiums

A

Portion of the premium that applies to coverage for the remainder of the year

72
Q

If premiums are paid annually, how do the earned and unearned stack up

A

Premiums are earned at the end of April (four months) and then the remaining 8 months are unearned

73
Q

Who is the policy delivered too

A

The applicant or the producer

74
Q

What must the producer do if he receives the policy

A

He must give it to the member and go over it with them (he cannot keep it in his possession)

75
Q

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

A

The policy would be in force once the application was explained to the member and they accepted and paid their additional premium

76
Q

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

A

Yes, coverage would still be in effect

77
Q

What if the policy is delivered to the producer and the applicant’s health changed for the worse

A

Then the producer should refuse the premium, not deliver the policy and then send the new information back to the insurer for further review

78
Q

When must the applicant have an insurable interest

A

They must have an insurable interest

79
Q

Does the insurable interest have to remain after the policy has been issued

A

No, you can get rid of your insurable interest once the policy is in effect

80
Q

When a policy will replace an existing policy, what must be disclosed with the new policy (4)

A
  • 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
81
Q

Under the no loss no gain statues what may be required of the replacing policy (4) BIG

A
  • 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
82
Q

When replacing a policy what should the applicant be advised of (3) BIG

A
  • 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
83
Q

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
  • 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
84
Q

How does the insurance company discourage the replacement of policies within the same insurer

A

They may limit the producer’s commissions to a percentage of the increase in premium, then allow for full commission

85
Q

Can the adult contracting with the minor void the contract

A

No, only the minor can void once they reach the age of majority

86
Q

Define a competent party

A

They are alive, sane and authorized to contract

87
Q

Define legal object in a contract

A

What each party is promising to do, must be legal

88
Q

What is the offer and acceptance in a contract

A

The offer is the application and the acceptance is the policy

89
Q

If the policy is issued other than as requested, then what is the offer and what is the acceptance

A

The offer would be the policy and the acceptance is the premium payment

90
Q

What is the insured’s consideration in a contract

A

The application and the premium payment

91
Q

What is the insurer’s consideration in a contract

A

Promise to pay claims

92
Q

Define an aleatory contract

A

A contract in which the performance of one or both parties is contingent upon the occurrence of a particular event

93
Q

Define an insurable interest

A

When a person stands to suffer a loss

94
Q

Define conditional in a contract

A

The insurer must pay only if a specific and uncertain event occurs

95
Q

What is the difference between an insured and the insurer in a unilateral contract

A

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

96
Q

Define adhesion in a contract

A

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)

97
Q

Can you transfer a contract to cover another person

A

No, contracts are personal and you cannot move it to cover different people (you are insuring the person not the car)

98
Q

What does the right to rescind state

A

That the insurer can terminate their contract anytime prior to the commencement of an action on the contract (ie paying claims)

99
Q

What does contract law govern

A

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

100
Q

What does Tort law cover

A

They govern situations where one person has harmed or injured another person, regardless of whether the act was intentional or through negligence.

101
Q

The employee pays all of their premiums for their personal disability income policy, are the benefits that they receive taxable?

A

No

102
Q

The employer pays all of the premiums for the employee’s disability policy, are the benefits that the employee receives taxable?

A

Yes

103
Q

Define concealment

A

Failure to disclose known facts that would be material to an insurance application

104
Q

If a person is guilty of concealment, then what could the insurer do

A

They can rescind the policy as long as it’s within the 2 year contestability window

105
Q

Does there need to be an intent to defraud in concealment

A

No, concealment could be with or without an intent to defraud

106
Q

What if the concealment was done to intentionally commit fraud

A

Then the insurer can deny claims and cancel the policy at anytime, they don’t have to be within the 2 year window

107
Q

When a policy owner offers their consideration in the form of an application and premium, how much premium do they pay

A

Only the first month, they do not promise to pay all premiums only the first one

108
Q

If an applicant wants to correct an application, he must do what

A

He has to initial any changes that he makes

109
Q

If a warranty is found to not be true, could the policy be voided regardless if the statement impacts risk

A

Yes, the policy could be voided if the warranty is found not to be true

110
Q

Are premiums paid by individuals for medical and dental insurance deductible

A

Yes

111
Q

Are premiums paid by individuals for disability income insurance deductible

A

No

112
Q

Can an insurer rescind a policy if the representations in a policy are found to not be true

A

No, they can only rescind if the information is false and material

113
Q

Are group accidental death and dismemberment benefits tax free

A

Yes you do not have to pay taxes on these benefits, regardless of who paid for the premiums

Disability Income Insurance (9 decks)

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