Insurance

Question 1

Termination is a qualifying event for 18 months of COBRA with one exception. What is it?

Answer 1

Gross Misconduct

Termination is the shortest continuation coverage for Cobra. 18 months.

Question 2

Employers are required to offer COBRA when they have at least how many employees?

Answer 2

20. Part-time people count as 1/2 a person.

Question 3

Risk can be addressed in 4 ways. What are the 4 ARRTs?

Answer 3

Avoidance - just don’t do it!
Reduction - reduce the impact ie: fire detectors, seatbelts, etc.
Retention - keeping some of the risk ie: deductibles
Transfer - ie: insurance company takes the financial risk

Question 4

What is the highest amount (%) you would need to pay for Cobra?

Answer 4

102% of cost

Question 5

What does HO-6 cover? (HO = Homeowner)

Hint: (Sex)

Answer 5

Condo owners - studs in only
- not the roof or any common areas

Question 6

What is the definition of a “hazard”?

Hint: Hazardous cliff ahead

Answer 6

The condition that makes a peril more likely
ie: gas soaked towel in garage (hazard) provides the opportunity of a peril (the cause of the loss) - fire

Question 7

What is the definition of a “peril”?

Hint: Hazardous cliff may result in a peril

Answer 7

The cause of the loss

ie: gas soaked towel in garage (hazard) provides the opportunity of a peril (the cause of the loss) - fire

Question 8

What does HO-4 cover?

Hint: 4 Rent

Answer 8

Renters - contents and liability

Question 9

What does HO-3 cover?

Hint: 3x5=15

Answer 9

Dwelling - open perils
Contents - named perils

3 is okay, but 5 is better

Question 10

What does HO-5 cover?

Hint: 3x5=15

Answer 10

The BEST homeowner’s insurance (5 of us in our family is best)

Both Dwelling and Contents - open perils

3 is okay, but 5 is better

Question 11

What can you add to HO-3 (dwelling open perils; contents named perils) to get open peril coverage on contents?

Hint: 3x5=15

Answer 11

HO 15 Endorsement

Question 12

If a homeowner’s insurance policy has a coinsurance clause (insured for at least 80% of replacement cost value) and coverage is not sufficient, how is the insurance payment amount calculated?

Answer 12

Did have/should have X loss - deductible

Question 13

What is it called when a homeowners policy requires dwelling coverage to be at least a stated percentage of replacement cost of the dwelling?

Answer 13

Coinsurance requirement

Question 14

In a PAP (Personal Automobile Policy), what do the split limits represent? ie:
$250,000/$750,000/$100,000

Answer 14

Bodies, more bodies and property

Max Bodily injury
Max ALL Bodily injuries
Max Property damage

Question 15

If an insured person hits a deer, what coverage is that? Comprehensive or Collison?

Answer 15

Comprehensive

Hint: I can comprehend hitting a deer at night

Question 16

If an insured person hits a pole or another car, what coverage is that? Comprehensive or Collison?

Answer 16

Collision

Hint: Caused by colliding - which is an accident!
Even if no other vehicle is involved.

Question 17

An umbrella policy provides additional coverage (on top of bodily injury and property damage) in what areas?

Answer 17

Boat/ATV
Libel/slander
Defense costs

DOES NOT provide business-related coverage

Question 18

How is the value of land accounted for when a replacement value of a home is given?

Answer 18

The purchase price of the land is deducted from the replacement value. Ex: $1,000,000 to replace the home; the land was purchased for $100,000 = $900,000.

If 80% coinsurance is required, it will be based on $900,000 because you’re not replacing the land.

Question 19

How are banking accounts grouped for FDIC insurance coverage for an individual?

Answer 19

$250,000 max for each category. For a single individual:
Aggregate savings, CD, and sole proprietor checking
Aggregate all types of retirement

Money market mutual funds are not covered by FDIC

Question 20

Inherited annuities are treated the same as IRAs and 401ks in regard to tax treatment. What are the tax ramifications for an inherited annuity?

Answer 20

There is no step up in basis. Basis is what the original owner paid. AKA “in respect of decendent” - ARD.

Question 20

What are the 7 account types for FDIC coverage purposes? (The aggregate amount based on each account type is covered up to $250,000)

Answer 20

Single
Joint
Retirement
Revocable Trust
Non- sole proprietorship (because they would be included in “single” account type) business
Employee benefit plan
Government

Question 21

What is the tax treatment in HSAs of distribution not used for qualified medical expenses?

Answer 21

Taxed at individual’s tax rate plus 20% penalty.

Question 22

Under COBRA, the maximum period of continuation coverage for an employee or qualified beneficiary who meets the Social Security definition of disability is what?

Answer 22

29 months.

18 months for termination (other than for gross misconduct or reduction in hours

36 months for everything else including Medicare

Question 23

What’s the difference between Universal Life and Variable Life insurance?

Answer 23

Universal Life = Greater flexibility: can adjust face amount and premium payments; incorporates use of term insurance (and the lower cost as is typical) with cash value feature of whole life.

Variable Life: Cash value can grow, but with greater investment risk to the insured.

Question 24

In a funded ILIT (Irrevocable Life Insurance Trust), trust income will pay for the premiums. Who is taxed on the trust income and at what rate?

Answer 24

The grantor, at their marginal tax rate.

Question 25

If the 7 pay test has failed (applied at inception and again if material change in policy), a CASH VALUE Life Insurance policy will be changed to a MEC (Modified Endowment Contract)

Distribution at death still remains non-taxable, and any taxable distributions (while living) are still taxed as ordinary income, but ORDER of distribution and penalties do change.

What are those changes?

Hint: MEC wrecks!

Answer 25

Non-MEC policies are not penalized for taxable distributions.
MEC policies penalize 10% if before age 59.5

Non-MEC policies’ cash value is distributed on a FIFO basis (basis first)
MEC policies’ cash value is distributed on a LIFO basis (gains first)

Question 26

To be eligible for Viatical Settlement, the insured must be either terminally ill or chronically ill.

What details are needed for each? And, how are the settlements taxed?

How is the viatical company taxed?

Answer 26

Terminally ill - physician has certified that death is likely within 24 months.
Taxation: proceeds are 100% tax free.

Chronically ill - unable to perform 2 of the 6 ADLS - BED COT) for at least 90 days.
Taxation: Only LTC costs are tax free.

Viatical company taxation: their basis is the amount paid to the insured, plus any premiums paid since buying the policy. Any growth is taxable.

Question 27

What is the grace period If the insured forgets to pay the premium or decides to end the contract?

Answer 27

The grace period provides 31 days to pay the premium without forfeiting any contractual rights and no questions asked.

Question 28

Assume a partnership has eight employees. By using a cross-purchase plan, each partner would have to purchase how many policies?

Answer 28

56 policies [(8 x (8 - 1)].

Question 29

How does owning and using Long-term care insurance impact Medicaid spend down (usually $2000)?

Answer 29

The benefit/payout amount paid from the Long-term Care policy (prior to the need for Medicaid) can be sheltered from Medicaid spend down.

Question 30

What are the tax treatments for annuities when:
annuitized
random withdrawals

Answer 30

Annuitized - basis/expected payout (pro rata) = % excluded from payment and will incur no tax; taxable portion is paid at ordinary tax rates

Withdrawals - LIFO at ordinary tax rate PLUS 10% penalty before 59.5

Question 31

Universal Life B is better (than A). Why?

Answer 31

Death benefit PLUS cash value is paid out at death.

Option A remains face value only, even if there is a cash value.