Insurance Flashcards

Question

Professional Liability: What are the two types Professional Liability Insurance and who/what does it cover?

Answer 1

Malpractice - Bodily Injury (doctors, dentists) Errors and Omissions (E&O) - Monetary damages (financial advisors, lawyers, accountants, insurance agents)

Answer 2

- Unlimited Medical Expenses - Disability Income (TAX FREE) - Death Benefits - Rehabilitation (Medical and Vocational) - Absolute Liability (hazards)

Answer 3

- Routine foot care, glasses, hearing aids, and dental - Emergency Care outside the US (some exceptions for Canada, Mexico and Caribbean)

Answer 4

Benefits are Limited: Pays all of the first 20 days of SKILLED care and everything over a specified amount per day for the next 80 days of SKILLED care (100 day max) The Limited Benefit is Subject to Substantial Restrictions: Pays for SKILLED care only: - Admission to a nursing home must follow within 20 days of the hospital stay of three days or more - The patient’s condition must be expected to improve

Answer 5

HMO: - Provider paid monthly fee regardless of services rendered (Capitation) - Pay a fee, get all services as defined - Out of Network care NOT COVERED at all PPO: - Provider paid for actual services rendered - Out of network partially covered, usually 70%

Answer 6

Company Requirements to Provide - Must have 20 Full/Part-Time Employees. Doesn't matter how many are covered. - If company has 21 employees and only 5 have health care, the 5 still get COBRA coverage - The option to buy Continuation (non-cancellable, guaranteed renewal). Coverage must be offered to: (Qualifying Event?) 18 Months - leave firm (terminated, voluntary, FT/PT) - employee, spouse, dependent 36 Months - death, divorce, legal separation, or eligibility for Medicare - Children: dependent status change, age limit in plan COBRA Charges For Continuation: can be 2% over the original cost of the premium of the group plan

Answer 7

- Used in conjunction with High Deductible Health Plan (HDHP) - Distributions are tax free if used for health care - Contributions not spent are carried forward and portable - Unused assets become property of named bene on death - Distributions for non-medical are ordinary income plus 20% penalty if under 65

Answer 8

Insurance company needs to pay if you can't perform own occupation, any occupation Own Occupation - Best definition for the insured. Can you perform your own job? No - get paid Any Occupation (Social Security definition). Can you perform any job? Yes - don't get paid. Can you not perform any job? No - get paid - Loss of Income Coverage Split Definition - Own occupation coverage then modified any occupation

Answer 9

How to Keep Coverage (Policy Continuation Provisions) - Noncancellable “Noncan”: Continuous term policy guaranteeing the insured’s right to maintain the policy at the stated premium - Guaranteed Renewable: Continuous right to maintain the policy, but the insurer may increase the premium by class of insureds

Answer 10

Taxation of Premiums and Benefits: The individual owns the contract and pays the premium: - Premiums are not deductible - Benefits are tax free to the employee The employee owns the contract and the employer pays the entire premium under a bonus arrangement like section 162 disability insurance: - Premiums are deductible by the employer as a bonus - Benefits are tax free to the employee (the employee "pays" the premium as a bonus the salary deduction). The employee owns the contract and the employer pays the entire premium under a salary continuation plan (group plan - company pays out the benefits). - Premiums are deductible by the employer - Benefits are taxable to the employee

Answer 11

Whole Life / Universal Life - low risk tolerance - Insurance company controls the investment return - Assets part of the general account Variable Life/Variable Universal Life - high risk tolerance - Client controls the investment return - Assets part of a separate account

Answer 12

CRAPO/5 - Cash - Reduce Premium - Accumulate with Interest - Paid up Additions - One-year Term/5th Dividend

Answer 13

Non-forfeiture: have cash value but don't want to pay any more premium, but don't want to surrender it yet. - Cash - Paid-Up Reduced Amount (reduced benefit) - Extended Term:

Answer 14

Settlement Options: part of contract to figure out what you want to happen to the contract when you die Remember: CPR-Post Script - Cash - Pure Life/Single Life - Refund - Period Certain - Specified Income/Period - Interest Only - Joint and Survivor

Answer 15

MEC: a life insurance policy that becomes a MEC and becomes annuity-like - Entered into after June 21, 1988 - Fails to meet the “7-Pay Test” (for the exam, includes ALL single premium policies) - Distributions/Withdrawals are taxed LIFO (Interest First) - Distributions under 59½ are also subject to 10% federal penalty tax (if not disabled) - Death Benefit is still tax-free

Answer 16

If old policy is not an MEC an insurance policy could become a MEC. Once a MEC, always a MEC. - If death benefit increases by $150k or less and the insured has guaranteed insurability (no proof of insurability), the policy will NOT lose its grandfathered (non-MEC) status. - If the policy increases by ANY amount and the insured must prove insurability, the policy MAY lose its grandfathered (non MEC) status.

Answer 17

If an interest in a life insurance policy is transferred for valuable consideration (not a gift), the proceeds in the excess of the consideration paid for the policy, combined with any premiums paid by the owner, are taxable as ordinary income (like a viatical).

Answer 18

No tax incurred if transfer of life insurance for - A sale or transfer to the INSURED (most common) - A sale or transfer to a partner or PARTNERSHIP in which the insured is a partner - A CORPORATION shareholder/officer - DIVORCE

Answer 19

Life → Life (OK) Life → Annuity (OK) Annuity → Annuity (OK) Annuity → Life (NO WAY!)

Answer 20

Stock Redemption: - Company does a stock buyback from the deceased - No Step up in Basis, Entity is owner and beneficiary Cross-Purchase: - owners buy life insurance on the other owners - Step up in Basis, Individual owner is owner and beneficiary

Answer 21

Endorsement Method: - Employer is the owner - Employee is not a shareowner Collateral Assignment Method: - Employee is owner - Employee is a Shareholder - Employee assigns the policy

Answer 22

Periodic Payouts: - Basis / Payout = Tax-free Lump Sum Payouts: - LIFO (Interest First Rule) - Ordinary income plus 10% penalty if under 59½ Same as MEC

Answer 23

FSA - Deducted from Salary. Not subject to income tax, FICA or FUTA - Health FSA may not be used to reimburse employee premiums paid for other health plans (such as MSA, HSA and LTC) - No LTC expense reimbursement. Medical FSA - Must be used by March 15th or forfeited to the company (use it or LOSE it - Medical Only) Dependent Care FSA - Dependent Care must be used by 12/31

Answer 24

Fringe Benefits: Tax-Free Given to Normal Employees - Health Care Premiums - Insurance Premiums on non-discriminatory group life policy up to $50K - Company car for working conditions only - Employer-provided transit passes ($300/month cap) or parking ($300/month cap) - Occasional overtime meal money, cab fare, theater or sporting event tickets - Discounts on services limited to 20% of selling price charged to customers

Answer 25

Health Insurance Premiums paid for self-employed, partners, and more than 2% owners of an S-Corp are Taxable Income. 100% is deductible as an adjustment to income on the FRONT of the 1040. This can include all types of health insurance programs

Answer 26

- written on 2 or more people - payable on the death of the 1st person to die - can be term or insurance with cash value - can be used in joint business ventures (buy sell agreement, etc.) - this joint insurance is cheaper than writing multiple single term policies - policy ends when the first person dies - helps to cover joint (mortgage, etc.) debts if one person dies

Answer 27

Limited pay life insurance when policy owner wants to pay for a limited number of years, not until death. Limited pay is not appropriate for someone with limited life expectancy. Someone with a limited life expectancy probably overpays for coverage by paying more than required to keep the policy in force.

Answer 28

If policy lapses, can sign a policy of reinstatement, pay late premiums and keep coverage and premium amounts of the original policy.

Answer 29

If want to end an insurance policy and don't need death benefits, can do a 1035 exchange to an annuity to receive income payments. The 1035 exchange will be tax free Basis in the insurance carries over to the new annuity

Answer 30

Can only convert term to permanent - e.g. term insurance ends at 65, so convert to permanent insurance (whole life) before the term policy ends at 65 If Group Plan insurance, an only convert to similar plan (non-cancellable, guaranteed renewal) and generally whole life to whole life. - can't convert a group plan term policy to an annuity

Answer 31

Employer can deduct all group life insurance premiums even if discriminatory Conversions: can only convert to similar plan (while life, etc), can't convert to term, or annuity, etc. COBRA: benefits must be the same as the group plan, can charge an extra 2% If non-discriminatory, all employees get the same group life insurance benefits, all employees get to deduct the premiums on the first $50,000 in benefits Discriminatory Group Life Insurance Plan - key employees need to pay income tax on the difference between the Table 1 rate and their discounted rate that they contribute at, on all group life insurance benefits. - non-key employees can deduct premiums for the first $50,000 in benefits but key employees cannot

Answer 32

If the employee pays the premiums, they get benefits tax free If employer pays the benefits, they get the benefits, pass to the employee and the employee needs to pay taxes on it.

Answer 33

Eligibility: normally requires employees to work 32hrs/week

Insurance Flashcards

(57 cards)