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CFA L3 Matheus > Section 4 - R23 - Risk Management Individuals (Eco Capital, Retirement) > Flashcards

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

1
Q

Human Capital (Definition)

A

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

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2
Q

Human Capital (Formula)

A

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

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3
Q

Financial Capital (Definition)

A

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

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4
Q

Net Worth v. Net Wealth

A

Net Worth = Assets - Liabilities

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

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5
Q

Financial Stages of Life (List)

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

Individual Risk Exposures (List)

A
  1. Earnings Risk
  2. Premature Death (Mortality) Risk
  3. Longevity Risk
  4. Property Risk
  5. Liability Risk
  6. Health Risk
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7
Q

Insurance Role in Individual Risk Mgmt (Describe)

A
  • Hedge against risk of premature death of an earner
  • Provide liquidity to a beneficiary without the delay of probate
  • Tax-shelted savings instrument
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8
Q

Life Insurance Types (List)

A

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

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

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9
Q

Permanent Life Insurance Types (List)

A
  1. Whole Life
  2. Universal
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10
Q

Whole Life Insurance (Describe)

A
  • Fixed Premiums
  • Cash Value may be accessed
  • Non-cancelable by insurance company
  • Participating or not (value grows or not)
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11
Q

Universal Life Insurance (Describe)

A
  • More Flexible
  • Policyholder can pay higher or lower premium
  • Insurance stays in force as long as premiums are paid
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12
Q

Insurance Riders (Definition)

A

Apólices Adicionais

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13
Q

Common Riders (List)

A
  • Accidental death
  • Accelerated Death (diagnosed terminal)
  • Guaranteed Insurability (right to purchase additional coverage)
  • Waiver of Premium (if becomes disabled)
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14
Q

Key Considerations in Life Insurance

A
  1. Mortality Table
  2. Discount rate
  3. Valuation = Discount the FV of benefit by % of survival rate and discount rate
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15
Q

Loading in Insurance (Definition)

A

Load = Other Expenses + Profit of Insurance Company

Both add to gross premium

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16
Q

Life Insurance Needs Calculation Methods (List)

A
  1. Human Life Value Method: Replace net contribution of the individual to family
  2. Needs analysis method: meet financial needs of survivors
17
Q

Disability Income Insurance (Definitions)

A
  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
18
Q

Disability Income Insurance (Characteristics)

A
  • Premium is fixed
  • Available individually and through employer
  • Typically have provisions for partial (muito) and residual (pouco) disability
  • Ceiling (up to a limit)
19
Q

Property Insurance Types (List)

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

Both have deductibles (franquia)

20
Q

Health Insurance Items (List)

A
  • Deductibles
  • Coinsurance
  • Copayments
  • Maximum out of pocket
  • Maximum Yearly Benefit
  • Pre-existing conditions
21
Q

Liability Insurance (Definition)

A

Personal Umbrella Liability

22
Q

Annuities Parties (List)

A
  • Insurer
  • Annuitant (receives benefit)
  • Contract owner (purchases)
  • Beneficiary
23
Q

Income Yield Rationale in Annuity (Explain)

A

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

24
Q

Advanced Life Deferred Annuities (Explain)

A
  • Hybrid between deferred and immediate
  • Pure Longevity Insurance
  • Buy now, payments begin late in life (80-85)
25
Q

Annuities Payment Methods (List)

A
  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
26
Q

Annuities Benefits (List)

A
  1. Tax Deferred Growth:
  2. Mortality Credits (earlier deaths provide return to the rest of the pool of annuitants)
27
Q

When to allocate investments to annuities? (Explain)

A
  • If you expect longer than avg life expectancy (Terror do INSS)
  • Greater pereference for lifetime income over other sources
28
Q

Insurance Program Options (List)

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

CFA L3 Matheus (18 decks)

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