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CFP Exam > Insurance > Flashcards

Insurance Flashcards

1
Q

Where is insurance regulated?

A

At the state level

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2
Q

What are 4 methods to manage risk?

A

Avoidance - most serious type of risk

Insurance - big financial loss, doesn’t happen often

Retention/reduction - minimal financial loss, too expensive to insure

Retention - minor injuries, illness, car door dings

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3
Q

What are perils?

A
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4
Q

What are hazards?

A

Three types

Physical

Moral: a character flaw. Lying cheating

Morale: being stupid. Leaving keys in the car

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5
Q

What is adverse selection?

A
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6
Q

What is the principal of indemnity? Subrogation clause?

A

Principal of indemnity is the right of the insured to be made whole after a loss occurs.. but not more than whole

Subrogation- insurance company steps into shoes

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7
Q

What is the principal of insurable interest?

A

You must have an emotional or financial hardship resulting from damage, loss, or destruction

Property and liability must exist at time of policy inception and at time of loss

For life insurance, you only need insurable interest at policy inception
- ex: divorce would not cancel a policy a previously married couple created

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8
Q

What is the difference between an insurance agent and broker?

A

Agent - legally represents insurance company

Broker - legally represents the policy owner, not the company

Review in book!

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9
Q

What are features of an insurance contract?

A

Exclusions - things that are not covered

Riders and endorsements - contract add ons. They take precedent over something in the policy if there is a conflict. Ex: house mold

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10
Q

What are the methods of valuation for insured losses?

A

Replacement cost - replacing property with new materials

Actual cash value - replacement cost less depreciation

Agreed on value - typical for art, antiques

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11
Q

How does the federal level regulate insurance?

A

It’s primarily regulated at the state level through the state insurance commissioner!

Although…

Legislative branch enacts laws for licensing agence

Judicial branch

Executive

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12
Q

What is the NAIC?

A

National Association of Insurance Commissioners

Provides watch list of insurance companies based on financial ratio analysis

no regulatory power

but issue model legislation for the states to adopt

NAIC does not directly regulate the insurance industry

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13
Q

What are the different methods of calculating insurance needs?

A

Capital Needs approach - NPV of future needs - income, college, etc

Human Life Value approach - looks at lost income less amount consumed by the insured

Capital retention - Not invade the capital of the estate

Income retention - how much insurance do we need to maintain the income level

Income multiplier - rule of thumb - 12-16x gross earnings

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14
Q

Features of term life

A

Max death benefit per premium dollar

no cash value, savings, or investment component

protection ends when term ends

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15
Q

Features of whole life policies

A

AKA permanent

If you want coverage for your WHOLE life (versus term)

Average the premium over your entire life – so more expensive when younger, but cheaper when older

Participating (pay a dividend) or non-participating (don’t pay a dividend)

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16
Q

What are you options when you own a participating policies?

A

This means you’re getting dividends

You can use the money to:

  1. just get cash - nontaxable and return of basis.
  2. Reduce future premiums
  3. Accumulate at interest (added to CV)
  4. Get a paid up perm addition
  5. One year of term insurance addition

Remember CRAPO

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17
Q

What are the different whole life payment structures?

A
  1. Ordinary life - pay your premiums until age 120
  2. Limited pay life - pay for x years
  3. Variable life - cash value is invested in stock, bond sub accounts. Death benefit and cash value fluctuate based on investment performance
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18
Q

What is first-to-die insurance?

A

Provides death benefits when eh first insured dies.

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19
Q

What is second or last to die?

A

Provides death benefits when the second dies

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20
Q

What is universal life?

A

FLEXIBILITY! Pay what you want to pay but don’t manage your investments.

Insured may adjust the:
- premiums
- face value
- cash value

Insured does not direct the investment portion

Cash value can be used to pay the premiums

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21
Q

What is the difference between universal A and universal B?

A

With B, as your cash value rises, your death benefit rises as well

unbundled

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22
Q

What is the difference between universal A and universal B?

A

With B, as your cash value rises, your death benefit rises as well

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23
Q

What are features of variable universal life?

A

Pick this if you have high risk tolerance and you want a higher return

Insured manages the investment.

Cash value is invested in a separate account, not the insurers general account

The cash value is not guaranteed but in the event of an insurance company failure the operate account will not be treated as an asset of the insurance company

unbundled

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24
Q

Memorize this insurance chart

A
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25
Q

What are insurance termination options?

A

Take out the cash – surrender value
- if this amount exceeds your basis, then it is taxable. Otherwise not

Take cash value and convert to paid up

Use the CV to buy a term policy

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26
Q

What are the settlement options of life insurance policies?

A

lump sum

interest only - might be the right option for a spouse who needs life income

Annuity payout

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27
Q

How does a cross purchase agreement work?

A

Provide the cash necessary to one partner to buy out the heirs of the other partners
ex: would give me the money to buy out Gregs share from Kristen

Cross purchase: each partner buys a policy on the other partners
– Basis increases by the amount that they paid the heirs

Entity agreement: Company pays for the policies.
- Does NOT increase basis

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28
Q

Features of key version insurance

A

premiums not deductible

death benefits are received tax free

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29
Q

What appears on the declaration section of an insurance policy?

A

Insureds name

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30
Q

What are the different types of authority that an insurance agent has?

A

Express authority - written in contract

implied authority - when a third party is led to believe authority based on letterheads and signs. These actions are within the agents rights

Apparent authority - signage and business cards that imply authority when there isn’t actually authority

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31
Q

Temporary insurance coverage, which is available based on an applicant’s ability to provide evidence of insurability, may be provided by:

A

Conditional receipt

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32
Q

What is the collateral source rule?

A

The person who commits the tort will not benefit or be relieved of obligation and responsibility just because the victim has insurance.

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33
Q

What is a collateral assignment?

A

Temporary transfer of some or all of the ownership rights of an insurance policy whereby such rights revert to the assignor upon satisfaction of agreed-upon conditions.

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34
Q

What is absolute assignment of an insurance policy?

A

Irrevocable transfer of all ownership rights which can be accomplished through a sale or gift.

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35
Q

What is a unilateral contract?

A

drafted by one party

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36
Q

What is an aleatory contract?

A

The policy values are uneven. The insured pays a small premium for a larger death benefit from the insurance company

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37
Q

What is a conditional contract?

A

The conditions must be met to establish the policy
-underwriting
-health screening
etc

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38
Q

What is personal contract of adhesion?

A

It is not a business contract. It is a policy on one person

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39
Q

What is dynamic risk?

A

The core risk resides in the change in the environment cause by the changing human condition

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40
Q

What is Viatication?

A

When you’re allowed to sell your life insurance policy because you are terminally or chronically ill

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41
Q

What are types of annuities in terms of how you pay for them?

A

Immediate: purchase and start receiving payments

Deferred: Two phases, accumulation then annuitization. You pay for it over x years then get paid for remainder

Flexible premium deferred annuity (FPDA): Allows insured to vary the premiums paid. Retirement income function of what they paid into it

Single Premium Annuity (SPDA): Lump sum. Can use LIF proceeds

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42
Q

What are types of annuities in terms of how they pay you?

A

Fixed - guaranteed return. Fixed interest rate.

Variable - invests in “sub accounts”. No guarantee of return. Owner takes on investment risk

Equity indexed -fixed annuity linked to an index. Usually limits downside risk

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43
Q

What is a guaranteed minimum payments annuity?

A

AKA period certain

You get the payments no matter what, the bene gets it if the annuitant dies

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44
Q

What is the refund option on an annuity?

A

If you die too early your bene either gets a cash refund or installments for a n agreed on time

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45
Q

How is life insurance tax?

A

DB are generally not taxable

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46
Q

How can endowment, life insurance, and annuities be exchanged?

A

Life insurance for life insurance - tax free
life insurance for annuity - tax free
annuity for life insurance - taxable
annuity for annuity - tax free

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47
Q

How are life insurance dividends tax?

A

Not taxable unless you’ve received more back than your basis

What you receive back reduces your basis

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48
Q

What is a MEC?

A

Designed in 1982 to prevent people from taking advantage of tax benefits of life insurance. They’d front load premiums then borrow at a low interest rate

7 pay test: If you contribute more than

If it’s a MEC, and you borrow, it is not tax free! LIFO treatment. OI paid on all withdrawals until you get to basis

Also need to pay a 10% penalty if you withdraw/borrow before 59.5

Doesn’t matter if you won’t pull money out until death

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49
Q

What happens if you sell your life insurance policy (transfer for value)

A

If the sale proceeds exceed basis, then the excess is ordinary income.

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50
Q

What are the exceptions to the transfer for value rule?

A
  • Transfer to the insured
  • transfer to the business partner of the insured
  • transfer to the partnership of the insured
  • transferred to a corp in which insured is shareholder
  • any transfer that results in a carryover basis from transferee to transferree
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51
Q

Are LI premiums tax deductible?

A

No! This allows for DB to ne tax free

Unless group

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52
Q

How are group life insurance premiums treated?

A

Insurance premiums paid by the employer are deductible to the employer

Premiums paid by employer for coverage over $50k are considered taxable income for employees

Note that premiums on key employee and split dollar insurance are not deductible

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53
Q

How are annuities taxed?

A

Earnings are not taxed while they grow in the annuity

Basis is always tax free

You calculate an exclusion ratio

Exclusion ratio = basis/total payments

Total expected payments = monthly payment x 12 months x life expectancy

Once you hit life expectancy, 100% of the payments are taxable as OI (but not subject to FICA)

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54
Q

How are viatacle settlements taxed?

A

your chronically or terminally ill

You sell your LI policy to a viatical

Your proceeds are tax free

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55
Q

Memorize this chart

A
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56
Q

How are annuities taxed?

A

If you do an early withdrawal:
- pre 1982 - taxed FIFO
- post 1982 - taxed LIFO

10% penalty if before age 59.5

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57
Q

What are the limits on healthcare?

A

NONE! Affordable care act

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58
Q

How to calculate with the insured should pay for medical?

A
59
Q

What is a direct recognition program?

A

Direct recognition programs are best described as follows: Any amount of cash that is removed from the policy is reflected in a decrease in the amount of dividends and interest paid on that policy.

With a “direct recognition” policy, when you borrow money from your policy the insurance company first subtracts the amount of the loan from the cash value, then calculates the dividend on the lesser amount. For example. If you have $100,000 cash value and borrow $10,000, your dividend will be based on the $90,000 cash value amount.

60
Q

What are the different types of group health insurance models?

A

HMO: (aka network model)

IPA:

PPO:

61
Q

What are the triggers for long term care benefits?

A

The triggers for LTC benefits are the inability to preform 2 of the 6 ADLs; dressing, eating, bathing, transferring, toileting and continence.

Benefits may also be triggered by severe cognitive impairments that require care to protect the individuals health and safety such as Senile Dementia, Alzheimer’s disease or Parkinson’s disease.

62
Q

What are the survivorship benefits for social security?

A
63
Q

When does medicare cover non-us med expenses?

A

There are three exceptions to this rule: 1 - You’re in the U.S. when you have a medical emergency and the foreign hospital is closer than the nearest U.S. hospital.

2 - You’re traveling through Canada without unreasonable delay by the most direct route between Alaska and another state when a medical emergency occurs and the Canadian hospital is closer than the nearest U.S. hospital.

3 - You live in the U.S. and the foreign hospital is closer to your home than the nearest U.S. hospital, regardless of whether it’s an emergency or not.

64
Q

What are the different HO policies?

A

HO-1 is almost non-existent basic coverage. HO-4 is renter’s coverage. HO-6 is condominium owner coverage.

HO-3 is special form coverage with open peril on coverage A and B.

HO-5 (not listed) is comprehensive form coverage.

65
Q

Under the basic approaches commonly in use in the no-fault auto insurance dilemma, which of the following best describes the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached?

A

Modified no-fault coverage is the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached.

66
Q

What are the different levels of disability insurance?

A

Any occupation: Disabled if can’t perform any job. Least expensive

Modified any occupation: Disabled if unable to perform duties of gainful occupation they’re reasonably fitted by education, experience, training, and prior

Own occupation: can’t perform your specific occupation.

Split definition: begins with own, moves into modified any after a year or two

67
Q

Features of the elimination period for disability insurance?

A
  • typically premiums are waived
  • think of the elimination period as a deductible
68
Q

Taxability of disability insurance

A

If Employee pays the premium with after tax dollars
- premiums are not deductible
- benefits are tax free

If employER pays the premium
- premiums deductible to employer
- benefits are taxed to employee

If employEE pays with pre tax dollars
- benefits are taxed

69
Q

What is the residual benefit of disability insurance?

A

if the insured goes back to work but isn’t making as much, the policy will pay the difference between new income and old income

70
Q

How is disability insurance integrated with social security?

A

any disability benefits received by social security will reduce the amount of disability paid by the insurer

71
Q

What is contingent business interruption insurance?

A

Company has insurance in case an outside business has a direct effect on your business.

72
Q

Are premiums on a cross purchase agreement tax deductible?

A

Insurance premiums to fund buy-sell agreements in a cross-purchase plan are not tax deductible. In the case of an entity agreement, where the firm owns the policies, the premium would also NOT be tax deductible.

73
Q

What is split dollar life insurance?

A

It can be a fringe benefit to an employee.

Insurance premiums are usually split between the employer and the employee (insured).

It may be used to fund a buy-sell stock redemption agreement.

The insurance death benefit of a split-dollar life insurance policy is generally divided between the employee and the employer.

74
Q

What are the three types of homeowners insurance?

A

Basic

Broad

Open

75
Q

What is a PPO?

A

Preferred Provider Organizations (PPOs)
- network of providers
- provider offers a discount on services
- more expensive

76
Q

What is an HMO?

A

Primary care physician - gateway

77
Q

What are HSAs?

A

Must have a high deductible insurance

Excluded from taxable income

Withdrawals are tax free for med expenses

employer gets to deduct contributions

If you pull out for non med expenses, taxed as ordinary income
- if also under 65, add 20% penalty!

78
Q

What are HSA permitted expenses?

A

Dental + ortho
Vison
Cobra
Long term care premiums
Healthcare if receiving unempoyment
Most over the counter meds
Medicare and other health care coverage if over 65

79
Q

When can you go on COBRA?

A

If your company had group coverage and have 20 full time employees and

  • death of covered employee
    -voluntary or involuntary termination (except misconduct)
  • reduction of hours
  • divorce
  • dependent is no longer eligible
80
Q

Who pays for COBRA?

A

Employee pays full cost plus up to 2% more

81
Q

How long is COBRA

A

18 months for fired or quit
36 months for death, divorce, medicare elgibility

36 months for loss of dependency status by children

29 months for disabled

82
Q

What are the 7 types of LTC coverage?

A
  1. skilled nursing- -traditional nursing home
  2. Intermediate nursing - occasional nursing care
  3. Custodial care - assistance with eating, dressing, etc
  4. Home health care - in home
  5. adult day care - Daily assistance while spouse or family works
  6. Assisted living -
  7. hospice
83
Q

What are eligibility requirements for LTC?

A

Chronically Ill - can’t perform 2 of 6 ADLs for at least 90 days

Substantial cognitive impairment

84
Q

What are activities of daily living?

A

Eating, bathing, dressing, transferring, using toilet, continence

NOT walking!

Bathing
Eating
Dressing
Transferring
Cogn

85
Q

Features of long term care

A

Elimination period - longer the cheaper
Daily benefit
benefit period

86
Q

When is a long term care policy qualified?

A
  • no surrender value
  • limited to qualified long term care services
  • uses dividends to reduce future premiums or increase benefits
  • meets consumer protection laws
  • does not pay for expenses covered under medicare
87
Q

What is the max deduction for long term care premiums?

A

> 70 $5640

So $5640 is deductible max if over the 7.5% of AGI medical deduct rule

88
Q

What is modified any occupation?

A

If a similar job is possible, they can’t collect

89
Q

What is split definition

A

Starts with own occupation and moves to modified any occupation

90
Q

What are home owners insurance basic coverages?

A

Section 1 coverages:
- Coverage A: Dwelling + attached structures
- Coverage B: Other structures
- Coverage C: personal prop
- Coverage D: Loss of use

Section II Coverages:
- Coverage E: Personal liability – sue
- Coverage F: medical payments to others – they have Fallen and can’t get up

91
Q

What are the basic named perils? Broad? Open?

A

Basic
1. Fire
2. Lightning
3. Windstorm
4. Hail
5. Riot
6. Aircraft
7. Vehicles
8. Smoke
9. Vandalism
10. Explosion
11. Theft
12. Volcano lavas and ash

Broad:
13. Falling objects
14. Weight of ice, snow, sleet
15. Accidental overflow of water (not flood)
16. Sudden bursting of appliances
17. Freezing of system or appliance
18. Damage from electrical current

Open: Everything except what’s specifically excluded

92
Q

What are exclusions from all HO polices?

A

Ground movement: earthquake/ land slide

Ordinance or law

Damage from water

War or nuclear hazard

Power failure

Intentional acts (ex: burning house)

Neglect

93
Q

What are the forms of homeowners insurance?

A

HO1 - only covers dwelling and basic perils (1-12)

HO2 - Basic and broad perils covered

HO3 - Open perils for dwelling and other structures so coverage for all physical loss other than what is excluded
- personal property covered a named peril basis

HO4 - renters - just covers contents and minor improvements

HO5. - comprehensive. All open peril even personal prop

HO6 - Condo owners
- no building coverage (condo association covers that)
- just personal prop and structure within condo

HO8 -

94
Q

Features of flood insurance

A

Covers dwellings and contents

$250k max

Federally subsidized

Covers Actual Cash Value most commonly by replacement cost is available

30 day waiting period - can’t buy it when you see that rain is going to be nuts next week

Unless it’s declared a flood zone already

95
Q

What is inland marine insurance?

A

endorsement or floater as part of the HO policy to cover:

  • furs
  • jewelry
  • silverware
  • golf equipment - covers at clubhouse too
  • camera, fine art antiques, coin or stamp collections, musical instruments, etc

appraisal

96
Q

What boats would a HO3 policy cover?

A

With an engine up to 25HP

Otherwise you need a separate policy

96
Q

What are the parts of the personal auto policy?

A

Part A: Liability
Part B: Medical payments
Part C: uninsured motorist
Part D: coverage for damage to your auto
Part E: Duties after an accident or loss
Part F: General provisions

97
Q

What are the parts of the personal auto policy?

A

Part A: Liability
Part B: Medical payments
Part C: uninsured motorist
Part D: coverage for damage to your auto
Part E: Duties after an accident or loss
Part F: General provisionsWhat

98
Q

What are split limits policies with auto insurance?

A

50/100/25

Per person/Per occurrence/ Property damage

50 k max per peron, 100k max per occurance

99
Q

What does part b med payments cover?

A

you or your family member in the auto, you or anyone struck by an auto, any other person occupying your covered auto

Exclusions:
- uber, racing, auto used without permission

100
Q

What are the two types of part D: coverage for damage to your auto?

A

Collision - you hit something

comprehensive other than collision - something hits you

101
Q

Is auto insurance valid in Mexico?

A

Not typically

102
Q

What is typically excluded from your auto policy?

A

company car

motorcycles or other non 4wheel vehicles

if you are borrowing a car for regular use

racing

103
Q

What is no fault insurance?

A

A certain threshold - if it’s beneath it there is no fault and no lawsuit

104
Q

What is contributory versus comparative negligence?

A

Contributory - you contributed a bit so you both are at fault equal
— Last clear chance rule

Comparative rule - 80/20 responsible

105
Q

What is a PLUP?

A

Everyone should have one for at least a million or up to your net worth

You’ll have to increase your auto to a certain threshold then they cover you on top of that

also protects future income

106
Q

What are the types of professional insurance?

A

Errors and omissions

Malpractice

CLUP - commercial liability

BAP - business auto policy

107
Q

What is medicare percentage?

A

1.45% for both employer and employee

additional .9% on the employee for income over $200k if single, $250k if MFJ

108
Q

What is the percentage of OASDI?

A

6.2% for both employer and employee up to $147,000

109
Q

How much is social security reduced when you take it early?

A

5/9 for each month for the first 3 years

5/12 for each month over three years

+8% if you wait

110
Q

What is the social security definition of disabled

A

disability is expected to last for 12 months or disability will result in your death AND you can’t perform duties of any occupation - earning $1510 per month

111
Q

How do you own SS credits?

A

Can earn 4 quarters per year
must earn $1510 to earn a quarter
can earn all in one day

Must earn 40 quarters - fully insured

If under 31, at least half quarters since turning 21

If age 21-24- 6 quarters

112
Q

Summary of social security benefits

A
113
Q

What happens if you’re earning money and collecting social security?

A

If over FRA, doesn’t matter

In the year that you turn FRA, you lose $1
of social security for every $3 you earn over $19,560

In the years before reaching FRA, you lose $1 for every $2 earned over $51,960k

you recover this after FRA

limits are provided on the test

no reduction applies to pension and unearned income

114
Q

How do you calculate if social security benefits are taxable?

A

Add: AGI + Nontaxable interest + half of social security

If you’re over the first hurdle - 50% taxed

If you’re over the second hurdle - 85% taxed

115
Q

When do you qualify for medicare?

A

65+
on social security disability for 2+ years
end stage renal failure

Spouse can also qualified even if they’ve never worked

116
Q

What are the parts of Medicare?

A

A: hospital
– Skill nursing care up to 100 days
– Does not cover custodial

B: Doctors

117
Q

What benefits are offered w Medicare part A

A

$1556 deductible per benefit period 1st 60 days
- $389 per day for days 61-90
- $778 per day for days 91-150

For skilled nursing care
- first 20 days covered
- days 21-100, $194 per day
- 100 on you pay

118
Q

What does medicare part b cover?

A

80% of approved charges - doctor visits, lab test, annual wellness, initial preventative, etc

doesn’t cover hearing aids, cosmetic, etc

Automatically enrolled if part B

119
Q

What is covered with medicare part c?

A

medicare advantaged or medicare managed care plan

adds coverage on top of part b

monthly premium

120
Q

What is medicare part D

A

prescription drug

Additional fee

121
Q

When is the HSA 20% penalty waived?

A

When they turn 65

122
Q

What is a residual benefit?

A

If salary was $!2k, then could work for $5k. A residual benefit is paying the difference between your old job versus your new job as a disabled person. Take the % of wages they would have covered, and multiple that by the lost income after including the disabled job.

The residual benefit is the lost income as a percentage of the pre-loss income times the monthly disability benefit: ($12,000-$5,000 = $7,000 lost income. $7,000/$12,000 = .583. The monthly disability benefit is 60% of $12,000 = $7,200. Therefore, the monthly residual benefit is .583 × $7,200 = $4,200. None of the benefits will be taxable as the premiums were paid by your client with after tax dollars. Statement a. is incorrect because the benefit is not taxable. Statement d. is incorrect because most policies with residual benefits require lost income to be 20-25 percent of prior monthly income

123
Q

When you have X employees, you must offer Cobra

A

20 or more

Charge a 2% premium

124
Q

Is a rental car covered by your auto insurance?

A
125
Q

What are elements of a valid contract?

A

Competent parties
Offer and
Acceptance
Legal consideration
Lawful purpose

126
Q

Annual renewable versus level term insurance.

A

Annual renewable- renews every year. Premiums increase

Level - premiums stay the same

Decreasing term- level premiums, less db over time. Use it for a mortgage

127
Q

Noncancellable versus gaurenteed renewable

A

Noncancellable- continuous and premiums stay the same

Renewable- can renew until a certain age or number of years but the premiums can go up as long as the entire groups premiums go up

128
Q

What is HIPAA?

A

Protects workers ability to obtain health insurance when changing jobs, returning etc

Specifically for switching from 1 group plan to another

12 month window

Use if switching jobs within 62 days

129
Q

Are long term care benefits tax deductible?

A

Yes!

And benefits are tax free!l for a qualified policy!!

Qualified policy - needs care at least 90 days and unable to perform 2 or more activities

130
Q

How are disability premiums taxes?

A

If employee pays with after tax dollars- NOT deductible but benefits are tax free

If employer pays premiums- premiums ARE deductible but benefits taxed

If employee pays with pre tax dollars via a cafeteria plan, vendors to employee are taxed

131
Q

Social security definition of disability

A

Physical or mental impairment for 5 months

Expected to stop performing work for at least one year or regular in death

132
Q

What is the difference between an HO3 and HO5

A

. HO-3 policies provide all-risks/replacement cost coverage on the dwelling and actual cash value coverage on the contents. An HO-5 policy provides all-risks/replacement cost coverage on the contents.

133
Q

What are advantages of universal life?

A

Flexible premium!!!
Flexible DB!!
Face amount increased or decreased
cash value is invested in short-term money market accounts that grow tax-deferred and are considered to be relatively safe.

134
Q

When do you use contingent business interruption versus business interruption?

A

Business interruption: you own

You would go to collect from your contingent business interruption insurance because it is a business which you do not own that has a direct effect on your own business.

135
Q

Social Security benefits

A
136
Q

What is modified no fault coverage?

A

Modified no-fault coverage is the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached.

137
Q

How are dividends paid from a whole life policy taxed?

A

They are NOT TAXABLE as long as they are less than the basis (total premiums paid in)

138
Q

What is split dollar life insurance?

A

Split dollar life insurance is an arrangement where an employee and employer generally share the premium cost and cash value for death benefit of a life insurance policy covering the life of the employee.

It can be a fringe benefit to an employee.
Insurance premiums are usually split between the employer and the employee (insured).
It may be used to fund a buy-sell stock redemption agreement.

139
Q

Spilt definition insurance..

A

uses own occupation then moves to any occupation

140
Q

What are the HO coverages?

A

HO-1 is almost non-existent basic coverage.

HO-4 is renter’s coverage.

HO-6 is condominium owner coverage.

HO-3 is special form coverage with open peril on coverage A and B.

HO-5 (not listed) is comprehensive form coverage.

141
Q

What is the probation period when it comes to disability insurance?

A
142
Q

What is commercial general liability insurance?

A

General liability insurance is a broad type of insurance policy which provides liability insurance for general business risks.

Covers things like:
Coverage A, bodily injury and property damage liability.
Coverage B, personal and advertising liability.
Coverage C, medical payments.

143
Q

What happens with a group permanent policy conversion?

A

The policy may be converted from term to permanent - the insured does not need to show evidence of insurability

At conversion, the billing is switched to the insured.

The policy may be converted from a term policy to an individual permanent life policy.

CFP Exam (6 decks)

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