LIFE, HEALTH, DISABILITY Flashcards
(16 cards)
CAPITALIZED-EARNINGS approach to Life Insurance
Capitalize net earnings - consumption and taxes, by inflation adjusted discount ratio
Variation of the Human Life Value Approach
NEEDS APPROACH to LIFE INSURANCE
—Income replacement and lump-sum needs of survivors Lump sum cash Final Expenses Debt Repayment Education Expenses Emergency Expenses Income Dependency Spousal life income BLACKOUT PERIOD = Readjustment period + dependency period
HUMAN LIFE VALUE APPROACH to Life Insurance
—Projected Future earnings - self maintenance costs Individual’s current earnings Future growth rate of earnings Number of working years remaining Cost of self-maintenance Capitalization rate (discount rate)
TYPES of TERM INSURANCE POLICIES
Annual Renewable Term (ART) [more expensive every year]
Level Term [level premiums for a period of time, to prepay some of later higher premiums]
Decreasing Term [Death benefit decreases, premium stays level]
TYPES of WHOLE LIFE INSURANCE POLICIES
Ordinary Life [age 120]
Limited Pay Life [high premiums for short period]
Variable Life [cash value in securities; death and cash fluctuate on investments]
Current Assumption Whole Life CAWL [premiums can go up if assumptions change
Lo CAWL is low premium assuming higher interest rate
Hi CAWL assumes lower interest rate than current
Interest Sensitive Insurance7eradssc
TYPES of ANNUITY CONTRACTS
Immediate or Deferred
Flexible Premium or Single Premium
Fixed or Variable
Equity Indexed (S&P 500) *** Research this more
TYPES of ANNUITY PAYMENTS
Pure Life
Life with guaranteed minimum
Installment Refund (at least total premiums repaid)
Joint and Survivor
MODIFIED ENDOWMENT CONTRACT
Life Insurance becomes MEC if it fails the 7 Pay test (cumulative premiums exceed cost)
If a MEC then withdrawals and loans are taxed LIFO
Taxation of Installment option for Life insurance proceeds or annuity payments
Monthly payments X 12 months X life expectancy = total payments
(Basis / Total Payments) = Exclusion Ratio
(Exclusion Ratio X Monthly Payments) = Amount excluded from monthly income
$500k paid into annuity; now collecting $4k/month for expected 20 years. . .
$4,000 X 12 X 20 = $960,000 expected total payments
$500,000 = basis
500,000 / 960,000 = 52% exclusion ratio
$4,000 X 0.52 = $2,080 return of basis (until basis is met)
MEDICAL EXPENSES
Hospital Expense (room and board)
Surgical Expense (surgeon in or outside hospital)
Physician’s Expense (all non surgical physician)
Major Medical (hospitalization, physician, surgeon, physical therapy, prescription drugs)
Eye and dental excluded
Usually 80/20 Co insurance plus deductible per family member
AFFORDABLE CARE ACT
There was a penalty for non coverage, which was eliminated after 2018
Employer Requirements (more than 50 full-time) must have coverage or penalty
Four benefit categories
Bronze = 60%
Silver = 70%
Gold = 80%
Platinum = 90%
Catastrophic for up to age 30’s
Guarantee issue and renewability, dependent coverage to 26; prohibits lifetime and annual limits
DIFFERENT HEALTH INSURANCE POLICIES
HMO (managed by primary care phy—no coverage outside HMO)
Staff Model (corp), Group Model (Network), Ind. Practice Assoc (physicians who contract out to HMO)
PPO (Network of providers, offers discount, penalty for going outside, but right to choose)
Managed Care PCP (Primary Care Phy driven; fewer options; small copayment)
Health Savings Account HSA (Tax deductible, earnings tax-free for qualifying expenses
Can include employer contribution
Must have high-deductible plan—cannot have other Health Reimbursement accounts
Cannot be on Medicare; cannot be eligible to be dependent on another’s return
HEALTH INSURANCE PROVISIONS
Noncancellable policies (guaranteed to specific age or number of years) Guaranteed Renewable (until specific age or number of years) premiums can be raised for class
COBRA
Offered by employers with at least 20 full time employees
Extends the same group coverage after end of employment
Employee pays 100% of insurance cost plus possible 2% fee
If employer goes bankrupt and no longer has plan, then COBRA cannot happen
Generally covered for 18 - 36 months (lower end for reduction in hours or termination, unless terminated for “gross misconduct”)
Employees have 60 days to apply for COBRA
LONG TERM CARE OPTIONS
—Medicaid (for poorest; state, fed, or both; eligible once assets are spent down—but could have penalty if assets gifted up to 5 yrs prior to nursing home
—Medicare (Assets must be brought to 0–including prior gifts—before Medicare pays)Benefits are VERY restrictive; only pays if patient can improve
—Retirement Comm. (four levels of care offered from independent to skilled nursing)
—Private Long Trm Policy (7 types of coverage: skilled nursing, intermediate nursing, custodial care, home health care, assisted living, adult day care, hospice care.). Must be chronic or suffer substantial cognitive impairment—cannot perform 2 of 6 ADLs for at least 90 days
—Long Term Care Partnership (pays for first portion of Long-term care, then Medicaid—disregards assets for Medicaid up to benefit amount
—TAX benefits: premiums tax deductible; benefits tax free in qualified policy (needs care for at least 90 days and unable to perform 2 or more ADLs, or has substantial cognitive impairment)
DISABILITY
Coverage, Term, Elimination Period, Taxability, Amount, Definition, Residual Benefit
—Any Oc (least expensive)
—Modified Any Occ (reasonably suited)
—Own Occ (most expensive, for high-paying fields)
—Split Def (starts as own occ, moves to mod any occ after 1 - 2 years
Benefit Period (short if less than 2 yrs)
Elimination Period (premium waived; functions as deductible)
TAXATION!! If YEE pays after tax, premiums NOT deductible, benefits are tax FREE
If YER pays, premiums deductible to YER, benefits ARE taxed
If YEE pays PRE tax, benefits ARE taxed
Cost of Living Rider
Residual Benefits (makes up difference between prior income and new job)
Social Security reduces amount paid by insured
Probation period (usually 15 - 30 days, waiting before coverage begins)
Grace Period—coverage remains
Reinstatement (after lapse)
Guaranteed Renewable (may increase premiums for group; optional to renew)
Noncancellable (insurer MUST renew, cannot raise premiums
