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Flashcards in Risk Management Deck (32):

Business Liability Exposures

(1) Contractual Liability; (2) Sale or Service (for a fee) of liquor; (3) Employee Theft; (4) Pollution; (5) Product-Related; (6) Completed Operations.


Risk Management Methods

(1) Avoidance (staying away from a high crime neighborhood or not driving a car); (2) Reduction (wearing seatbelts or installing shutter) *Risk-sharing is a type.; (4) Retention (a health insurance deductible or no insurance); (5) Transfer: Insurance


Major Concerns insuring High-Value Property

(1) Ensuring an appropriate level of coverage and (2) Coordinating coverage so that there are no gaps or duplicates of coverage


Property Insurance Types

(1) Homeowners; (2) Automobile; (3) Inland Marine


Section I Standard Homeowner's Insurance Form

(1) Coverage A: Insures Dwelling; (2) Coverage B: Insures other structures on premises; (3) Coverage C: Insures General Personal Property; (4) Coverage D: Provides Loss-of-use coverage


Section II of Standard Homeowner's Insurance Inform

(1) Coverage E: Comprehensive Liability Insurance; (2) Coverage F: Medical Payments to others, claim expenses, damage to property of others, first-aid expense, loss assessment coverage


Standard Policy Forms

(1) HO 00 03
(2) HO 00 05
(3) Each provides coverage on an open perils basis: any risk not specifically excluded will be covered on some basis.


Policy Form for Old Homes

(1) HO 00 08
(2) Claims settles on actual cash basis (ACV), rather than replacement cost.
(3) When replacement cost exceeds ACV, as with some high value older homes, insurance would not be sufficient.


Homeowners Policy: Personal Property Limitation

(1) Some valuable personal property has limited levels of coverage with standard homeowner's (2) Replacement cost coverage will not increase coverage levels of these items. (3) Solution: add personal property endorsement.


Type of Property covered by Inland Marine or Personal Property Insurance

Cameras, jewelry, furs, silverware, golf equipment, fine arts, antiques, rare stamps or coins, musical instruments, wedding gifts, etc.



(1) Bodily Injury $25k; (2) Accident $50k; (3) Property Damage $10k


Parts of a Standard Personal Auto Policy

(1) Part A: Liability Coverage; (2) Part B: Medical Payments Coverage; (3) Part C: Uninsured Motorist Coverage; (4) Part D: Coverage for Damage to your auto; (5) Part E: duties after an accident or loss; (6) Part F: General Provisions


Covered Vehicle in a Standard PAP

(1) Any vehicle listed in declarations of policy (2) Any new vehicle meeting PAP requirements as long as insurer is notified within 14 days of obtaining vehicle (3) Trailer's owned by the insured, excluding mobile homes; (4) any vehicle substituting coverage vehicle due to breakdown, repair, servicing, loss, or destruction.


Physical Damage Coverage for PAP

(1) Collision; (2) Comprehensive (other than collision)


Liability Exposures Excluded from Coverage under Comprehensive Personal Liability Policy

(1) Intentional Acts; (2) Business and Professional Pursuits; (3) Rental of Property; (4) Motor Vehicles


Umbrella Liability Insurance

(1) Normal liability limit in excess of $1 million; (2) Require increased level of coverage in base policies-homeowner's and auto; (3) increase and broaden coverage; (4) Pays after base


Professional Liability Coverage

(1) Malpractice Insurance: used by medical professionals in situations where they may cause physical harm. Policies are not standardized and can cover various specialties; (2) Errors and Omissions: used by professionals which may cause financial ham (lawyers, financial planners, brokers, etc.)


Commercial Liability Insurance

(1) Employer's liability and Worker's Compensation- Worker's Comp prevent employer's from being sued but employer's liability covers litigious cases.; (2) Directors' and officers' errors and omissions insurance; (3) Employment Practices Liability Insurance; (4) Commercial Umbrella Liability Coverage aka Blanket Catastrophe Excess Liability Insurance


Two basis types of Life Insurance

(1) Temporary or Term; (2) Permanent


Multiple-Life Policies

(1) First-to-die used for personal or business uses like buy-sell/cross-purchase/mortgage/education ; (2) Second-to die (or survivorship) used mostly in estate planning in conjunction with unlimited marital deduction.



(1) Modified Endowment Contract if it fails seven-payment test; (2) Cash Withdrawal taxed at ordinary income and may be subject to 10% early withdrawal penalty (3) Death benefit normally paid on income tax-free


Viatical Agreement

(1) Provide a way for terminally ill or critically ill insured to receive some value from life insurance while still alive; (2) The insured sells policy and receives % of death benefit tax-free (3) Any gain is taxable to the new policy owner


Private Placement Life Insurance

(1) Custom-designed policies offered through domestic and foreign insurers to high net worth individuals; (2) Often structured to invest in a variety of investment vehicles like mutual funds, stocks, hedge funds, etc.


Overfunding a PPLI

(1) If cash account becomes too large relative to face value, growth may be currently taxable. (2) If it fails the seven-pay test, withdrawals prior to death will be taxed as ordinary income on a LIFO basis and subject to 10% early withdrawal. (3) Taxed on gains first instead of tax-free return of contributions


Private Annuities

(1) Assets are placed in a private annuity structure to remove them from the individual's estate. (2) Donor may receive stream of income; (3) Gift taxes may or may not be paid


Risk Management Review for New Client

(1) Homeowner's and Auto Insurance Policy?
(2) Liability and Uninsured/Underinsured limits adequate; (3) Umbrellla or Personal Excess Liability Policy in place and adequate
(4) Any activities that may cause risk to themselves or others


Coordinating Multiple Policies

(1) Any missing coverage or duplicate coverage; (2) Minimum coverage amounts coordinate: liability coverage matches umbrella deductible; (3) Coordination or Tracking Mechanism of Policy Renewal


Personal Property Coverage for Collectibles

(1) Professional appraisal used to establish item value; (2) Will the insured be required to replace or repair or will be paid cash; (3) Will items be covered for full value or value after depreciation; (4) Will new items be covered; (5) Coverage outside home like in museum; (6) Coverage in transit.


Private Split-Dollar Arrangements

(1) Money to pay premiums is provided by one entity who usually has a right to receive from the policy an amount equal to premium paid. (2) Remainder goes to insured or policy beneficiary. (3) Between family members is called a private split-dollar arrangement.


Equity Split-Dollar Arrangement Types

(1) Economic Benefit Regime: the policyowner pays the premiums for the benefit of the insured. The economic benefit of the life insurance will be considered a gift to the insured from the owner. (2) Loan Regime: All premium payments by the nonowner are deemed loans to the owner/insured. Loans must be interest-bearing with owner considered borrower and grantor lender. Loan interest is taxable.



(1) High-deductible not a problem for HNW; (2) Maximum out-of-pocket exposure is limited; (3) Contributions by individual are tax deductible and principle and interest not taxed if used for medical; (4) HSAs are portable; (5) Over 55 can catch-up


Concierge Health Care

(1) Pays an annual fee for personalized care and specialized services. (2) 24/7 access to personal physical; (3) Housecalls; (4) Extended consultation; (5) Coordination with specialists; (6) Same-Day appointments