Insurance Flashcards
(118 cards)
1
Q
What is Risk?
A
A condition where there is a possibility of loss (a situation where exposure to loss exists).
Starting a business
Buying real estate
2
Q
What is Peril?
A
The cause of a loss, the event insured against:
Fire
Windstorm
Theft
etc.
3
Q
What is a Hazard?
A
A condition that may create or increase the chance of loss arising from a peril.
Owning a home on an earthquake fault
Owning a home by a river
4
Q
What are the Elements of Insurance?
A
- Large number of homogeneous exposure units
- Loss must be definite and measurable
- Must be fortuitous or accidental
- Must not be catastrophic (for the insurance company)
5
Q
What are the Methods to Avoid/Reduce Loss?
A
- Avoidance: Do not drive, Do not purchase a home but rent
- Diversification: Duplication of assets or activities at different
locations - Transference: INSURANCE
- Retention: Voluntary - Recognizes that the risks exist and assume
- losses (deductible, coinsurance)
- Risk Reduction: Sprinkler system, safety programs
6
Q
What is Insurable Interest?
A
- Property and Casualty: At inception and at time of claim
- Life: At inception, but need not be at time of claim
7
Q
What are the Parts of the Insurance Contract?
A
- Declarations Page: Factual Statements that identify the specific
person, property or activity being insured. - Definitions: Explanation of key policy terms
- Insuring Agreements: Spells out the basic promise of the insurance
company - Conditions: Spells out in detail the duties and rights of both parties.
- Exclusions: Circumstances when the insurer will NOT pay.
DICE
8
Q
What are Negligences?
A
- Attractive Nuisances: Swimming pool, vacant lot
- Negligence per se: Violation of a statute
- Strict Liability/Product Liability
- Absolute Liability: Workers Comp
- Vicarious Liability: Respondeat superior (principal’s liability for their
agents).
9
Q
What are Defenses?
A
- Assumption of Risk (skiiing, car racing)
- Contributory (jay walking, being drunk)
- Comparative (A is 20% negligent, B is 80%)
- Last Clear Chance (Rear end someone when you could have avoided
it by swerving, braking in time)
10
Q
What are two methods of Calculating Life Insurance needs?
A
- Capital Utilization Approach: Uses annuitization to provide needed
income but leaves no money at the end of the planned period. - Capital Needs Approach: Uses interest only, so the original capital is
still left at the end of the period (also called Capital Retention or
Interest Only).
11
Q
What are the most comprehensive Insurance Rating Service/Category services?
A
- A.M. Best: A++ to F
- Standard & Poor: AAA to CCC
12
Q
What are Sections of a Homeowner’s Policy and
what do they cover?
A
Section I (Coverage: A B C D)
A - Dwelling and Attached Structures
B - Other structures, separate from dwelling (detached garage,
fences, sheds)
C - Contents and Personal Property
D - Loss of Use
Section II (Coverage: E F)
E - Liability
F - Medical Payments
13
Q
What property is excluded under Personal Property Coverage?
A
- Animals, Birds, or Fish
- Motorized Land Vehicles and Aircraft
- Property of roomers, boarders or other tenants
- Property contained in an apartment regularly rented or held of
rental to others by the insured (unless specifically endorsed)
14
Q
What are the Basic Form Perils Covered?
A
The policy lists perils covered:
Windstorm
Hail
Aircraft
Riot
Vandalism
Vehicles
Explosion
Smoke
Fire
Lightning
Theft
Study Hint: Remember: WHARVVES/FLT
15
Q
What are the Broad Form Perils Covered?
A
RAFF
- Rupture of a System
- Artificially Generated Electricity
- Falling Objects
- Freezing of Plumbing
16
Q
Homeowner’s Policy Exclusions (perils) include
A
“OPENN WIF”
Ordinance/Law
Power Failure
Earthquake
Nuclear Hazard
Neglect
War
Intentional Loss
Flood
Note: Sinkhole is a covered peril for the exam
17
Q
What is the formula for Replacement Cost Coverage?
A
*Usually Commercial 90%, Residential 80%
18
Q
What are the requirements for a vehicle to be eligible for:
Insurance Services Office (ISO)
Personal Auto Policy (PAP)
A
- Be owned by an individual or by a husband and wife living in the
same household - Be private passenger auto*
- Not be used as public or livery conveyance
- Not be rented to others
19
Q
What are the Parts of an Auto Insurance Policy?
What do they cover?
A
Part A - Liability to third parties
Part B - Medical payments
Part C - Uninsured/Underinsured motorists
Part D - Damage to the covered auto
20
Q
What is classified as a “Covered Auto” under an
Auto Insurance policy?
A
Any vehicle shown on the declarations page
Any of the following which you acquire during the policy period:
- Private Passenger Auto
- Pickup Truck
- Panel Truck or Van
NO coverage for any of these used in a business (need a commercial policy for that)
- Any trailer you own listed on the declarations page
- Any auto or trailer you do not own while used as a temporary
substitute for any vehicle described herein which is out of normal
use because of a breakdown, repair, servicing, loss or destruction
21
Q
What is Uninsured Motorist Coverage (UM)?
A
This agreement promises to pay the amount an injured insured could have collected from the uninsured driver if such driver had carried auto liability insurance. The term “covered person” as used under the uninsured motorist coverage of the PAP includes the following:
- The named insured and any family member
- Any other person occupying the insured’s covered auto
- Any person, for damages that person is entitled to recover because
of injury to a person described above
Note: UM is liability protection, NOT medical payments
22
Q
Who are the Persons Insured under medical payments coverage of the PAP?
A
- The named insured and any family member who suffers bodily
injury caused by accident while occupying covered vehicle - The named insured and family members who if, while a pedestrian,
are struck by any motor vehicle designed for use on public roads or
by a trailer - Other persons while an occupant of the insured’s auto (passengers)
23
Q
What are the perils covered under the “Other Than Collision” Provision of an Auto Policy?
A
Glass Breakage
Loss caused by:
Falling Objects
Fire
Theft
Explosion
Earthquake
Windstorm
Hail
Water
Flood
Riot or Civil Commotion
Contact with Birds or Animals
24
Q
What are the benefits of an Umbrella Liability Insurance?
A
- Nearly always a correct answer since it is smart coverage
- Provides liability coverage (BI/PD) for catastrophic claims
- Requires policy owner to carry certain underlying coverage of
specified amounts - Professional acts are specifically EXCLUDED!
25
What are the two types Professional Liaiblity Insurance and who/what does it cover?
- Malpractice - Bodily Injury (doctors, dentists)
- Errors and Omissions (E&O) - Monetary damages (financial advisors,
lawyers, accountants, insurance agents)
26
What does Worker’s Compensation cover?
- Unlimited Medical Expenses
- Disability Income (TAX FREE)
- Death Benefits
Rehabilitation (Medical and Vocational)
- Absolute Liability
27
Medicare does NOT cover…
- Routine foot care, glasses, hearing aids, and dental
- Emergency Care outside the US (some exceptions for Canada,
Mexico and Caribbean)
28
Explain the limitations of Medicare’s Long Term Care coverage.
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 30 days of the
hospital stay of three days or more
- The patient’s condition must be expected to improve
29
Compare HMO vs PPO
HMO:
- Provider paid monthly fee regardless of services rendered
(Capitation)
- Out of Network care not covered at all
PPO:
- Provider paid for actual services rendered
- Out of network partially covered, usually 70%
30
What are the COBRA coverage requirements and
Qualifying Events?
- Must have 20 Full/Part-Time Employees.
- The option to buy Continuation.
Coverage must be offered to: (Qualifying Event?)
- Terminated employees/dependents up to 18 mo.
- Voluntary or involuntary termination, change from FT to PT
- Spouses and other dependents up to 36 mo.
- Employee’s death, divorce, legal separation, or eligibility for Medicare Children of Employees up to 36 mo.
- Loss of dependent status (marriage)
- Reaching dependency age limit specified by plan
31
What is a Health Savings Account (HSA) and
what are its benefits?
- 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
32
What are the Definitions of Disability?
Own Occupation - Best definition for the insured
Modified any occupation
Split Definition - Own then modified
Any Occupation (Social Security definition)
Loss of Income
33
What are the Policy Continuation Provisions for Disability Income?
- 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
34
What are the four characteristics of insurable risk?
- large number of homogeneous exposure units
- loss must be definite and measurable
- loss must be fortuitous or accidental
- loss must not be catastrophic to insurance company
35
Property loss calculation
Default coinsurance is 80%
36
Workers Comp
Benefits under workers comp:
- Medical Expenses paid (no limits)
- disability income with very short waiting period
- Deathe benefits payable to family
- rehab benefits
37
Medicare Part A
Benefits of Part A:
Hospital stays:
- First 60 days: Subject to a deductible
- Next 30 days: Second deductible
- Additional 60 days: Third deductible
- Max 150 days per stay
- Post-hospital skilled nursing care: Up to 100 days
Home health services: UNLIMITED post-hospital care
Hospice care: Covered for terminally ill patients
Blood coverage:
- Patient pays for/donates first 3 pints
- Medicare covers additional blood
38
Medicare Part A Limitations
Limited international coverage:
- Generally, services outside the U.S. are not covered
- Some exceptions in Canada, Mexico, the Caribbean, and U.S.
territorial waters
- Medicare as a secondary payor when:
- Employer group health insurance applies
- Veteran’s benefits apply
- Covered by workers’ compensation
39
Life insurance dividend options
40
Endowments
Wrong answer on the exam
41
Life insurance Nonforfeiture Options
42
Life Insurance Settlement options
- Cash
- Interest only
- Fixed period
- Fixed Installment
- 4 life income options
43
Life settlement
Old person still alive sells policy
- Ordinary income on difference of cash value and the surrender value
- LTCG on higher of cash surrender value or net settlement proceeds
44
Section 1 Coverages
45
Section II coverage
46
HO-1
Dwelling, Basic
47
HO-2
Home, broad
48
HO-3
Open, B-open 10% of A, Broad 50% of A, Open 30% of A
49
HO-5
Open, open 10% of A, open 50% of A, Open 30% of A
50
HO-8
Older home, basic
51
HO-4
Renters, Broad-C, Broad 30% C
52
HO-6
Condo owner, Open C, Broad 50% C
53
Attractive nuisances
Swimming pool or open lot
54
Insuring agreement
Legally binding arrangement that explains the basic promise of the insurance company.
55
Negligence per se
Violating a statute
56
What are some ways to control losses?
- Diversify losses
- Retain losses
- transfer losses
- avoid losses
- reduce losses
57
What type of company is most likely to partially self insure EE medical insurance?
Companies with as few as 100 EEs.
58
The Declarations
Factual statements, identifying the specific person, property or activity being insured.
59
Unilateral
Insurance cannot force you to pay.
60
Aleatory - Gambling contract
Dollars given up are unequal.
61
Rescission
Deemed null from the beginning due to fraud
62
Reformation
When the contract between parties fails to express the original intent of the parties - it is amended
63
Collateral source rule
Just be cause you have insurance to cover yourself you can still sue someone for damages/injuries
64
Attractive nuisance
Swimming pool and vacant lot
65
Negligence per se
Violating a statute
66
Strict liability
Product liabiluty
67
Strict liability
Keeping wild animals
68
Vicarious liability
Principles responsible for their agents
(RIA owner and junior advisor)
69
Contributory
Jaywalking, drunk driving
70
Comparative
Contributed to the end result. Person 1 is 20% negligent and person 2 is 80%
71
Last clear chance
The person could have walked away but didn’t. Road rage started by someone else but you retaliate and they crash. You would be responsible.
72
Participating vs non participating
Participating policies are owned by the insureds. There is a possibility of a dividend.
73
How much can and EE’s spouse get in group life coverage without it being taxed?
$2,000
74
Can you convert health insurance?
Yes
75
Can you covert group disability insurance?
No
76
When are group term premiums deductible by the company?
When they pay them and are not the beneficiary.
77
VEBA
No deferred comp
78
What is the type of income that a highly compensated EE would receive on the benefits group term?
Compensation income
79
Are FSA contributions included in gross income?
Yes
80
Cafeteria plans can offer the following benefits
-cash benefit
- group term
- accident and health benefits
81
Can an FSA pay for health insurance premiums?
No
82
Is landlords or renters property in a rented room under coverage c?
No
83
How does coverage D work? (Home)
Coversge d covers excess cost incurred by being displaced
84
Endowment contracts are Always…
Wrong answers!
85
Where are the cash value accounts held in whole life and universal life policies?
What about variable policies?
Whole and universal are held in the insurance company’s general account.
Variable policies are held in separate accounts.
86
If someone wants to be forced to pay a premium what type of insurance should they buy?
Whole life
87
What types of policy are most commonly used for buy sell agreements?
Variable policies
88
Do you need to pay back a loan from a universal life insurance policy?
Nope. Death benefit will be reduced by the amount of the loan.
89
Accidental death/Double Indemnity
Double the DB if insured dies accidentally
90
Non forfeiture options
- Cash option: (you get cash value plus dividends)
- reduced paid up insurance: face amount of policy is reduced. Deaths benefit is the paid up insurance bought with the cash value of the original policy. Single premium paid.
- Paid Up term (extended term): Policy continues until cash value runs out.
91
Settlement options (someone died)
1. Cash option: cash now
2. Interest option: insurance hold onto money until you ask for it
3. Installments for fixed period: Set timeline pay out
4. Installments of a fixed amount: set amount for as long as it lasts
5. Life income options: Annuity
92
Dividend options
1. Cash (tax free)
2. Reduce premium (premium pmts reduced)
3. Accumulate with interest ( dividends remain with insurance company’s in interest bearing account - interest is taxed)
4. Paid up additions (satellite policies)
5. One year term insurance (5th dividend option)
93
Whole Life Insurance Keys
Types offered (2)
Benefits and disadvantages
Types
- straight whole life (lifetime payments)
- Limited-pay whole life (pay for only a specific period of time
Benefits:
- permanent protection
- Level premium
- savings component (forced)
Disadvantages:
-Premiums must be paid
- Premiums higher at the beginning
- not flexible
94
Universal Life Insurance Keys
- Flexibility
- Loans are available and reduce the deaths benefit if not paid back.
- Money in General account
95
Variable Universal life Keys
- CV is held in separate accounts (market like returns)
96
What is APL?
Automatic payment loan (you pay for premiums from cash value)
97
Are MECs death benefits taxable?
Nope. Only loans
98
Transfer for value exceptions
I: Insured
C: corporation
D: divorce
P: partners in company
I see”c” dead people
99
What makes an insurance policy a MEC?
- Single premium after 1988
- Fails to meet 7 pay test
100
How to get highest payout from your annuity?
Straight life/pure life annuity
101
Exclusion Ratio
102
Breakpoint
When insurance pays 100% of eligible expenses.
103
Does Medicare part b have a deductible?
Yes, and then 80% coinsurance.
104
If spouse A drops coverage for Medicare and the spouse B does not yet qualify for Medicare can spouse B elect cobra coverage?
Yes, for 36 months.
105
Age of eligibility of Medicare?
65
106
When does COBRA election start?
60 Days after notification
107
How many days in a nursing home does Medicare part A cover?
20 days paid in full.
108
Provision which benefits are proportional to amount of income lost.
Residual Disability
109
Can you increase the benefits of an existing disability policy?
No
110
What is SIS benefits?
Benefits that coordinate with SS benefits. If the SIS benefit is 1200 and the individual receives 800 dollars a month for SS. The SS offsets the 1200.
111
What’s the difference between Mutual owned and Stock owned insurance companies?
Mutual owned stock companies are owned by policy holders
Stock owned is owned by shareholders
112
What type of owner is not able to get tax deferred treatment of annuities?
Non natural persons
113
COBRA
18months coverage vs. 36 months coverage?
Coverage the same?
Max cost?
18 months coverage job related
36 months non job related
Same coverage
102% of premiums
114
Do you insure land?
No!
115
Can college grads be in their parent’s PAP?
Nope
116
Can you covert health plan to an individual policy?
Yes
117
Endorsement method spit dollar policy
Company owns the policy and the beneficiary is the spouse of the EE.
The ER get the cash value
118
Collateral assignment method spit dollar
EE owns the policy, is a shareholder, and assigns the policy
