Insurance Flashcards
(107 cards)
1
Q
Risk
A
condition with a possibility of loss (starting a business)
2
Q
Peril
A
cause of a loss (fire, theft, collision)
3
Q
Hazard
A
condition that may create or increase the chance of loss (building a home near a river)
4
Q
indemnity
A
insured is reimbursed for the amount lost (no profiting)
5
Q
Subrogation
A
right for insurance company to sue if it determines a different insurance company or person is responsible for payment
6
Q
Unilateral
A
only one of the parties (the insurance company) makes a binding promise
7
Q
Adhesion
A
contract is accepted as is or not at all
8
Q
Waiver provision
A
agent nor the insured can change the contract terms
9
Q
Aleatory
A
dollars spent by parties of the contract is unequal
10
Q
Rescission
A
contract is deemed null from the beginning and premiums refunded in the event of fraud, misrepresentation, concealment, or mutual mistakes
11
Q
Reformation
A
contract can be amended when insured was promised something and insurance company doesn’t fulfill that promise
12
Q
Collateral source rule
A
insured can sue the person at fault even if her own insurance would cover the claim (ex: made whole by insurance company for fire but fire causes daughter mental anguish, you can still sue)
13
Q
Tort
A
Wrongful act
14
Q
Intentional tort
A
deliberately preforming an act that is an infringement of rights (assault, libel, slander)
15
Q
Unintentional tort
A
negligence or carelessness
16
Q
Attractive nuisance
A
something about a property that could injure someone (swimming pool)
17
Q
Negligence per se
A
violation of a statute (school zones or crosswalks)
18
Q
Strict liability
A
limited to distribution of products found to be defective (food with bacteria, cars with defects, pharmaceuticals that cause illness)
19
Q
Absolute liability
A
extra hazardous condition which results in losses to others (keeping wild animals)
20
Q
Vicarious liability/respondeat superior
A
when one person is held liable for the negligent behavior of another person (parents responsible for child’s car crash)
21
Q
Assumption of risk
A
another party cannot be responsible for the injury if one party recognizes and understands danger in activity (signing a liability waiver)
22
Q
Contributory negligence
A
any negligence on the part of the injured party defeats the claim (jaywalking, being drunk)
23
Q
Comparative negligence
A
injured pedestrian is found 20% negligent and driver is found 80% negligent so damages are adjusted proportionally
24
Q
Last clear chance
A
other party prior to the accident had a chance to prevent the accident but failed to do so (rear end someone when you could have braked)
25
Calculation for capital retention method
Insurance to purchase = annual need/(net investment return - inflation rate) + money for year 1
26
Participating policy
pays annual dividend to the policyholder
Charges larger premium to the policyholder but then returns it as a dividend if not needed
Not required to pay dividend if company loses money
27
Nonparticipating policy
company retains the profits for its shareholders
28
When is an insurance policy in force?
Once applicant accepts offer and premium is paid
29
Express/loyal authority
* Written
* Explicit direction from the insurance company to the agent
30
Implied authority
* Not specifically granted
* Actual authority the agent has to carry out the principal’s business in accordance with general business practices
31
Apparent authority
* Rouge authority
* Arises out of negligence of the principal
* Typically applies to terminated agents
32
Coverage A of homeowners insurance
dwelling
* Includes any structures attached (garage, decks, fences)
* Includes materials and supplies located on or next to the residence for construction, repair, or alteration of the dwelling or other structures
* Land is excluded
33
Coverage B of homeowners insurance
other structures set apart from the dwelling (swimming pool, detached garage, patios)
* 10% of Coverage A
34
Coverage C of homeowners insurance
personal property
50% of Coverage A
* Property is covered anywhere in the world (not just when inside the insured home)
* Boats and trailers are limited to $1,000
35
Property excluded from Coverage C of homeowners insurance
o Animals, birds, and fish
o Motor vehicles and aircraft
o Property of roomers and boarders
o Property in an apartment rented to others
o Policy won’t cover exposures related to being a landlord (property left in a rented room)
36
Coverage D of homeowners insurance
loss of use
30% of Coverage A
* Additional living expense arising from damage to the insured property
* Only pays the necessary increase in living expense to continue standard of living
37
Coverage E of homeowners insurance
personal liability
* Provides for protection from damages for which an insured is legally liable
* Insurance company will defend insured and has right to settle any suit
38
Exclusions from Coverage E of homeowners insurance
o Business activities
o Usage of motorized land vehicles (RVs and golf carts are covered on the premises only)
o Usage of watercraft
o Usage of aircraft
o Bodily injury to any person who is eligible for worker’s compensation
39
Coverage F of homeowners insurance
medical payments to persons other than the insured who are injured while on the insured location
* Not liability coverage
40
HO-1 coverage
basic form of all coverages
41
HO-2 coverage
broad form of all coverages
42
HO-3 coverage
open perils for coverages A, B, and D and broad form for coverage C (much more comprehensive than HO-2)
43
HO-4 coverage
renter’s coverage (no coverage A since renter doesn’t own it) 4/for rent
* Broad coverage for contents and loss of use
44
HO-5 coverage
open form of all coverages
45
HO-6 coverage
Condo (6 letters in a joking way)
46
HO-7 coverage
Mobile home
47
Actual cash value
= loss - depreciation taken from that loss - deductible
48
For property loss calculations, what will the insurance company pay?
greater of ACV and amount paid by insurance formula
49
Coverage A of automobile insurance
liability when insured is at fault
50
$100,000/$300,000/$50,000
o First limit is maximum amount payable to any one person for bodily injury
o Second limit is maximum amount payable for all bodily injury claims
o Third limit is maximum amount payable for property damage claims
51
Coverage B of automobile insurance
medical payments
52
Coverage C of automobile insurance
uninsured motorist
53
Coverage D of automobile insurance
damage to your auto
54
Collision
the upset of your covered auto or its impact with another vehicle or object
55
Not collision
glass breakage, falling objects, fire, theft, explosion, earthquake, windstorm, hail, water, floor, riot, contact with animals
56
What happens if a policy owner fails to maintain the required level of umbrella coverage?
the insurer will pay only the amount it would have been required to pay had the underlying policies had the appropriate limits
57
Taxation of workers' compensation benefits
* Benefits are funded via premiums paid by the employer
Premium is tax deductible to the business
* Benefits are received tax free
58
Taxation of unemployment insurance benefits
Benefits are fully taxable to the recipient
Premium is tax deductible to the business
59
Eligibility for Medicare Part A
All persons aged 65 and older who are entitled to Social Security benefits or Railroad Retirement benefits are eligible
Disabled beneficiaries receiving benefits for at least two years are eligible (no age requirement)
60
Benefits under Medicare Part A
Hospital stays
Post hospital extended care
Post hospital health home services
Hospice care for terminally ill patients
Additional blood after first three pints
61
Benefits under Medicare Part B
Doctor’s services (house calls, office visits, nursing home)
Diagnostic tests
Flu shot
Radiology/pathology
Treatment for mental illness
Blook transfusion
Physical/occupational therapy
Drugs that cannot be self-administered
Outpatient services
Home health services
Preventative care services (colon cancer screening)
Depression screening
62
Exclusions under Medicare Part B
Routine dentures and dental care
Exams for eyeglasses and hearing aids
Most immunizations
Prescription drugs
63
Deductible
amount paid before coinsurance begins
64
Coinsurance
percentage of covered expense paid by the plan after the deductible
o 80%/20% means 80% covered by plan and 20% covered by participant
65
Stop loss limit/breakpoint
insurance company pays 100% of expenses once the limit is reached
66
Medicare Part D
o Must have Part A and/or Part B to qualify
o Plans are run by insurance companies approved by Medicare
67
Requirements for skilled nursing benefits under Medicare Part A
Requires skilled nursing
Admission to a nursing home must follow within 30 days of a hospital stay of 3 days or more
Patient must be expected to improve in a predictable amount of time (no Alzheimer’s)
68
Coverage rules for skilled nursing benefits under Medicare Part A
First 20 days are paid by Medicare
For days 21-100, a copay is required
After 100 days, the patient must pay the full cost of skilled nursing
69
Requirements for COBRA
o Small companies with fewer than 20 employees are exempt
Each part time employee counts as a fraction of an employee
o Election period lasts 60 days after the actual notice of the event
o Once coverage is elected, beneficiary has up to 45 days to pay the premium for the period of coverage prior to the election
o Employee must be participating in company’s health insurance plan to qualify
70
Health reimbursement arrangements (HRA)
o Only C corps can use
o Solely funded by employer funded
o Cannot be part of a cafeteria plan
71
HSA
Individual must be covered under a qualified high deductible health plan (HDHP)
Employer contributions are deductible to the employer
Tax free distributions if qualified
Penalty for nonmedical withdrawal is 20% of the distribution if under age 65
After age 65, nonmedical withdrawals are taxed as ordinary income but no penalty
Contributions not spent can be carried forward for the lifetime
Property of the named beneficiary at death
Can invest in stocks and bonds
72
Qualified expenses under an HSA
Doctors visits and tests not covered by insurance
Surgery and hospital stays not covered by insurance
Prescription and OTC drugs
Acupuncture and chiropractic care
Long term care expenses
COBRA coverage
Heath plan coverage while receiving unemployment compensation
Medicare premiums (NOT Medigap)
Dental and vision
73
Definition of totally disabled
unable to engage in any substantial gainful activity which is expected to result in death or can be expected to last more than 12 months
74
Definition of loss in income
policy pays benefits based on economic loss following an event
75
Residual benefits
allows disabled worker to work at lesser pay and still maintain reduced monthly benefit
76
Partial benefits
pays a portion of the total disability benefit for a specific period and then benefits stop after this period
77
Guaranteed insurability
Insured has the right to purchase additional amounts of coverage without proof of insurability
78
Cost of living adjustments (COLA)
additional premium for benefits to increase based on inflation
79
Disability insurance taxation if employee owns contract and pays premiums
* Premiums are nondeductible because paid with after tax dollars
* Benefits are tax free
80
Disability insurance taxation if employee owns contract and employer pays premiums under salary bonus arrangement/Section 162
* Premiums are deductible to the employer as a bonus (employee recognizes in income)
* Benefits are tax free to employee
81
Disability insurance taxation if employee owns contract and employer pays premiums under a salary continuation/group plan
* Premiums are deductible to the employer because paid with pretax dollars
* Benefits are taxable to the employee
82
Disability insurance taxation if owner of an S corp owns contract and employer pays premiums under a salary continuation
* Premiums are deductible by partnership or S corp because owners pay tax on them
* Benefits are tax free
83
Taxation of long term care insurance
o Benefits are not taxable
o Premiums paid and unreimbursed expenses are deductible as itemized medical expenses
84
Annual renewable term
premiums increase annually
85
Level term
premiums level for term of years
86
Re-entry provision
requalify for low cost premium through abbreviated underwriting
87
Decreasing term
level premium but amount of death benefit decreases (used to cover home mortgages)
88
First to die
buy sell agreements, mortgage or other family debt protection
89
Second to die/survivorship life
provide liquidity to pay estate taxes
90
Renewability provision
right to renew the policy but after a certain age it’s not permitted
91
Convertibility provision
exchange term contract for a permanent contract without evidence of insurability
92
Withdrawals and loans from permanent insurance
o Partial withdrawals from cash value are allowed
o No requirement to repay the loan but death benefit will be reduced by loan balance
93
Option A/Type 1/level death benefits
cash value has no effect on death benefit
94
Option B/Type 2/increasing death benefits
cash value adds to death benefit
95
What is an Automatic Premium Loan (APL)?
The company will automatically pay the premium and charge it against the cash value.
96
What is a Grace Period?
Additional time to pay the premium before the contract defaults.
97
What is a Reinstatement Clause?
Gives the owner of a lapsed policy the right to have it reinstated by submitting a policy reinstatement form.
98
What is a Misstatement of Age Clause?
Benefits will be adjusted to that which the premium paid would have been purchased at the correct age.
99
What is an Incontestable Clause?
The insurer will not contest the policy after it has been in force for a specific period of time.
100
What is a Suicide Clause?
If the insured commits suicide in the first two years of the policy, the insurer will only return the premiums.
101
What does Conversion mean in insurance?
Exchange a term policy for a permanent type plan without evidence of insurability.
102
Disability of waiver premium
o For whole life policies, company will waive all premiums due after the policyowner has become totally and permanently disabled
o For universal and variable universal policies, there are two options:
Waiver of mortality and administration expenses – those expenses are waived but the cash value doesn’t change
Waiver of premium – premium would be added to the policy’s cash value
o Group policies don’t have the waiver
103
Accidental death/double indemnity
doubles death benefit if the insured dies accidentally
104
Accelerated benefit rider
allows withdrawal of certain percentage of policy’s death benefit if terminally ill
105
Taxation of viatical settlement
o Benefits are received tax free by insured
o Viatical company pays ordinary income on the gain (SALES PROCEEDS TO INDIVIDUAL ARE TAX FREE)
Gain = death benefit – payment received – any premiums paid by the viatical company
Basis = payment received + premiums paid by the viatical company
106
Income taxation of life insurance
NORMALLY TAXATION IS FIFO IF NOT A MEC
* Dividends are treated as return of premium and are not income taxable
* Withdrawals and loans are not income taxable
* Cash value grows tax deferred
107
Taxation of MECs
* Withdrawals and loans are taxed as LIFO plus 10% penalty if under age 59.5
* Death benefits are income tax free
* Cash value grows tax deferred
