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2024 November CFP Exam > Insurance Planning 11% > Flashcards

Insurance Planning 11% Flashcards

(70 cards)

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1
Q

Pure Risk

A

Insurable

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2
Q

Speculation risk

A

Gain or loss on investment

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3
Q

Fundamental Risk

A

Impersonal group risk (recession

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4
Q

Particular risk

A

Personal (your disability)

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5
Q

Static risk

A

Caused by other than changes in the economy (earthquake)

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6
Q

Dynamic risk

A

Caused by changes in the economy

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7
Q

Peril

A

a cause of a financial loss (fire, theft, collision, hurricane

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8
Q

What must be true for a risk to be insurable?

A
  • there must be a large number of homogeneous exposures
  • risks must be measurable and determinable
  • losses must be accidental as to the insured
  • losses cannot be catastrophic to the insurer
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9
Q

Principle of indemnity

A

cannot make a profit to make whole

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10
Q

Insurable interest

A

for life: at inception and for property: at the inception and at the time of loss

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11
Q

Contract is personal

A

cannot be transferred or assigned without the consent of the insurer with the exception of life insurance

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12
Q

Contract of adhesion

A

ambiguities are changed to the writer/insurer, a take it or leave it contract. No negotiating approved as is for sale in state by the state insurance commissioner

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13
Q

Contract is unilateral

A

one promise only and made by the insurer and conditional (conditioned on the insured paying premiums)

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14
Q

The statute of limitations for tort decisions

A

2 years up to 3 for property damage

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15
Q

Tort Law- Comparative Negligence

A

If both the plaintiff (injured party) and the defendant contribute to the circumstances that result in injury then the damages are adjusted to reflect their respective percentage of fault

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16
Q

Tort Law -Contributory Negligence

A

If the injured party contributes in any way to the circumstances that result in injury, then the injured party cannot collect any damages

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17
Q

Agency Law

A

An Agency and agent binds the principal if in course and scope of agenecy, may result from express, implied, or apparent authority

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18
Q

Insurance is Regulated by:

A

NAIC - National Association of Insurance commissioners) policy group - State

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19
Q

Insurance is rated by

A

A.M. best (A++-S), Moody’s (Aaa-B3), S+P (AAA-B)

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20
Q

Variable Life

A

investment decisions are made by insured, agent must have insurance license and securities license to sell, guaranteed death benefit and possible equity investment

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21
Q

Universal Life

A

Flexible premiums adjustable death benefit, only need insurance license to cell

A- benefit is the greater cash value or death benefit
B- sum of cash value + death benefit

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22
Q

Needs Approach

A

The present value of dependents needs, including last medical, funeral, adjustment period, mortgage payment fund, dependency cost of living, education fund, and retirement fund

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23
Q

Human Life Approach

A

the present value of income expected less taxes and decedent consumption

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24
Q

Capitalized Income Approach

A

Decedent’s income (less taxes and consumption) divided by the inflation adjusted investment rate

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25
Life Insurance Loans Taxation
Taxable if Modified Endowment Contract (MEC) and only to extent earnings are withdrawn as loans
26
MEC
Fails the 7 pays test all single premium insurance policies are these, does not affect taxation of death benefits
27
Premiums - Life Insurance Taxation
Not tax deductible for personal or business insurance, except group-term insurance
28
Paid up Additions
purchases additional insurance each year for insured regardless of health or occupation
29
One-year Term 5th Dividend option
Adds term insurance each year to the policy face amount equal to cash value of the policy
30
Buy Sell Agreements - Cross purchase calculation
Number of policies = # partners X(# partners-1) Advantage: step up in basis for remaining partners
31
Personal Auto Policy (PAP)
covers liability, medical payments, uninsured motorist, damage to own auto - replacement vehicle coverage is for 30 days, if new 14 days
32
PAP rules
owner of Vehicle is primary insured limits are expressed $100/$300/$50 -Bodily, Accident, property damage
33
Personal Liability Umbrella Policy (PLUP)
Need for it is usually if $1-10 million in excess of underlying auto and home coverage - premiums are inexpensive - provides legal defense at no cost against the policy limits - covers all members of HH -covers personal injury liability
34
Medicare
A federal health insurance plan for people who are 65 years or older, retired or not
35
Medicare Part A
Hospital Insurance - SS Tax -skilled nursing care, home health care, hospice care -60 consecutive day after no care benefit period - $1,632 deductible per benefit period. -For 60-90th day of care $408 per day coinsurance -After 90th day, 60 lifetime days $816 per day coinsurance
36
Medicare Part B
Medical Insurance -optional -doctors services, ambulance, diagnostic testing, outpatient therapy, emergency room visits, preventative care, X rays Premium $174.70 Deductible: $240
37
Medicare Part D
prescription drugs
38
Medicare: Part B NOT COVERED
- routine physical exams, dental care, cosmetic surgery, hearing aids, eye exams, or care received in a foreign country
39
Long Term Disability
60-70% of of gross pay may be integrated with SS to reduce premiums in group plans 30-180 day elimination period which essentially serves as a deductible - needs to be non-cancellable or guaranteed renewable
40
Short Term Disability
Covers up to 2 years benefit (usually group)
41
LTC Insurance
Medicare does not provide LTC - non cancelable or guaranteed renewable Cannot perform 2 of 6 ADLs - small Fed income tax deduction for premiums
42
ADLs
- eating, bathing, dressing, transferring, toileting, or continence
43
Employer Provided Term Insurance
Not taxable to employee for 1st $50k of death benefit provided
44
HO Insurance: Open Perils
all perils covered, unless excluded
45
HO Insurance: Broad
18 perils
46
HO Insurance: Basic
12 perils
47
HO Insurance: General Exclusions
Flood, intentional loss, Earth movement, neglect
48
HO-2
Coverage A: Dwelling - Broad Coverage B:Other Structures - Broad Coverage C:Personal Property - Broad Coverage D: Loss of use - Broad Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
49
HO Insurance Exclusions
Watercraft with more than 25 hp, business activities, motor vehicle liability, uninsured locations
50
HO-3
Coverage A: Dwelling - Open Coverage B:Other Structures - Open Coverage C:Personal Property - Broad Coverage D: Loss of use - Open Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
51
HO-4
Coverage A: Dwelling - N/A Coverage B:Other Structures - N/A Coverage C:Personal Property - Broad Coverage D: Loss of use - Broad Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
52
HO-5
Coverage A: Dwelling - Open Coverage B:Other Structures - Open Coverage C:Personal Property - Open Coverage D: Loss of use - Open Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
53
HO-6
Coverage A: Dwelling - Broad Coverage B:Other Structures - Broad Coverage C:Personal Property - N/A Coverage D: Loss of use - Broad Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
54
HO-8
Coverage A: Dwelling - Basic Coverage B:Other Structures - Basic Coverage C:Personal Property - Basic Coverage D: Loss of use - Basic Coverage E: Personal liability - bodily injury/personal property - NOT personal injury Coverage F - Medical payments - Not based on Fault, does not cover insured family
55
Indemnity
Pay for losses has deductible coinsurance on major medical and stop loss provision doctors are independent
56
HMO
uses co-pay/ doctors are employees of HMO
57
PPO preferred provider network
uses co-pay, Doctors are independent of insurer. Doctors agree to charge reduced rates in exchange for increased patient volume.
58
POS point of service
combines HMO PPO indemnity as insured moves among providers deductible, copays change accordingly
59
EPO exclusive provider organization
Similar to HMO but no referral needed to see specialist
60
Health Savings Accounts
may be set up by individuals or employers and allow eligible individuals to save for health care costs, contributions made are tax deductible and distributions to pay qualified ME are excluded from income, cary over amounts to future years left in account
61
FSA
Commonly used by employers as an employee benefit that permits them to defer income $3,200 limit tobe used to pay Health care expenses with pre tax dollars
62
FSA rules
use it or lose it, must use contributions for ME by 2 1/2 months after the end of the year, can be used for optional medical procedures, child care or dependent care, reimbursed for OTC medicine
63
SS Benefit Reduction
Born - 1937 or earlier - 65 full retirement, 36 months before Age 62, average percentage reduction 0.555, totaling 20% Born - 1943- 1954 - 66 full retirement, 48 months before Age 62, average percentage reduction 0.520, totaling 25% Born - 1960 or later - 67 full retirement, 60 months before Age 62, average percentage reduction 0.5, totaling 30%
64
When can a widower get their spouses SS
60 years old
65
Non-qualified HSA distributions will be waived after age
65
66
Most restrictive Disability Insurance
Can't perform any occupation ever
67
Medicare Advantage
like a HMO, PPO add care not offered under Medicare: Vision, Dental, etc.
68
Transfer of Policy for Value
Death benefits are taxable to the transferee to the extent proceeds exceed basis
69
69
Exceptions to Transfer for Value Rule
- Transferred to the insured -to a business partner of the insured -to a partnership of the insured to a corporation in which insured is a shareholder or officer -that results in carryover basis from transferor to transferee

2024 November CFP Exam (6 decks)

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