Insurance Flashcards

Question

What is Uninsured Motorist Coverage (UM)?

Answer 1

This agreement promises to pay the amount an injured insured could have collected from the uninsured dirver 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

Answer 2

* Glass Breakage Loss caused by: * Falling Objects * Fire * Theft * Explosion * Earthquake * Windstorm * Hail * Water * Flood * Riot or Civil Commotion * Contact with Birds or Animals

Answer 3

* Nearly always a correct answer since it is smart coverage * Provides liability coverage (BI/PD) for catasptrophic claims * Requires policy owner to carry certain underlying coverage of specified amounts * Professional acts are specficially EXCLUDED!

Answer 4

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

Answer 5

* Unlimited Medical Expenses * Diasbility Income (TAX FREE) * Death Benefits * Rehabilitation (Medical and Vocational) * Absolute Liability

Answer 6

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

Answer 7

**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 8

**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%

Answer 9

* 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

Answer 10

* 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 11

**Own Occupation** 1. The best definition for the insured and most expensive 2. Inability to engage in one's own occupation **Modified any occupation** 1. Inability to engage in any reasonable occupation for which one might be suited by education, experience, or training, or for which one could easily become qualified 2. ineligible for benefits if you work another job. You can still receive benefits if you can take another job, just not if you actually do take the job. 3. The difference between this type of provision and any-occupation coverage is that under any-occupation coverage you are ineligible for benefits even if you don’t take a job that you can work. **Split Definition** - 1. To years own occupation, then modified own occupation **Any Occupation** (Social Security definition) * Inability to engage in any occupation **Social Security Disability** 1. Mental or physical impairment that prevents the worker from engaging in any substantial gainful employment; for Social Security, the disability must have lasted for 5 months and be expected to last a total of at least 12 months or result in the death of the worker.

Answer 12

Policy Elements: 1. Definition of Disability 2. Elimination Period 3. Benefit Amount or Percentage 4. Benefit Term 5. Coverage (perils insured against)

Answer 13

* **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 14

**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 owns the contract and the employer pays the entire premium under a salary continuation plan (group plan).** * Premiums are deductible by the employer * Benefits are taxable to the employee

Answer 15

* Insurance company controls the investment return * Assets part of the general account * Whole Life * Universal Life

Answer 16

* Client controls the investment return * Assets part of a separate account * Variable Life * Variable Universal Life

Answer 17

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

Answer 18

* Cash * Extended Term * Paid Up * Reduced Amount

Answer 19

* Cash * Pure Life/Single Life * Refund * Period Certain * Specified Income/Period * Interest Only * Joint and Survivor

Answer 20

* 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 21

* 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 22

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). **The main exceptions to this rule are:** * A sale or transfer to the insured * A sale or transfer to a partner or partnership in which the insured is a partner * A corporation in which the insured is a shareholder or officer * Divorce

Answer 23

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

Answer 24

**Stock Redemption**: * No Step up in Basis **Cross-Purchase**: * Step up in Basis

Answer 25

**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 26

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

Answer 27

* Must be used by March 15th or forfeited to the company (use it or LOSE it) * Medical Only * Dependent Care must be used by 12/31 * 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) * Expenses for LTC services can NOT be reimbursed under a health FSA, but other medical expenses can be reimbursed.

Answer 28

* Health Care Premiums * Insurance Premiums on non-discriminatory group life policy up to $50k * Company car for working conditions only * Employer-provided transit passes ($265/mo. cap) or parking ($265/mo. 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 29

* 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 30

To receive benefits from a long-term care insurance policy, the insured must be chronically ill. ***Chronically ill*** **is defined as being unable to perform, without substantial assistance, two of six activities of daily living (ADLs) for at least 90 days**. The ADLs include: 1. eating, 2. bathing, 3. dressing, 4. transferring from bed to chair, 5. using the toilet, and 6. continence (i.e., the ability to control one's bowel and bladder). Substantial services are required to protect the individual because of substantial cognitive impairment

Insurance Flashcards

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