Insurance (CFP 2018)

Tiffany purchases a universal life insurance policy with a face amount of $1,000,000 and with a cash value of $100,000. The death benefit would be what?

$1,100,000

Frank's salary is $100,000. His employer provides 2x salary in group term coverage. The cost is $.12 for $1,000 in coverage. How much income must Frank impute?

$100,000x2= $200,000 amount of insurance $200,000-$50,000= $150,000 of taxable coverage $150,000/$1,000= 150x.12x12= $216 of imputed income located on form W-2 box 12, code C

What is speculative risk?

- there is a chance of profit, loss or no loss - usually undertaken by entrepreneurs - generally voluntary risk and no insurable

What is coverage D?

- coverage for loss of use -will pay for additional living expenses incurred when the insured is unable to occupy the dwelling due to damages caused by a covered peril - coverage limited to 30% of coverage A (dwellings) - covers loss of use in case a home burns down - can also covers income loss due to property damage in a case of renting

what happens to SS benefit if a spouse passes away and the widower wants to get married?

- encourage them to not get married until age 60, since they will be able to collect SS from the deceased and the new husband

What is under coverage A?

- it covers dwellings - pays for repair/replacement for damage to the house and any attached structures - covers all building materials on the premises - losses are paid on a replacement cost basis - calculation= amount of insurance carried/coinsurance requirement*amount of loss - needs to have 80% of replacement cost of the building (coinsurance)

What are section II coverages?

- liabilities and medical payment coverage - coverage E= personal liability - coverage F= medical payments to others

social security chart

- max is 2X PIA (per family) - a divorced spouse does not count in the family taking money for SS and maxing out the benefits

What are the three insurance provisions?

1. renewable 2. convertible 3. waiver of premium= if insured becomes totally disabled, the premiums are waived during the period of disability

What are the five categories of social benefits?

1. retirement benefit 2. disability benefit 3. death benefit 4. survivor's benefit 5. medicare

What is variable universal life?

- a product with investment options such as stock/bond/money market mutual funds - no minimum guaranteed rate of return or interest - cash value is invested in a separate account

What is a peril?

- actual cause of a loss - examples= fire, wind, tornado, earthquake, burglary and collision

What does the executive or state insurance commission do for the insurance industry?

- administers, interprets, and enforces insurance laws - does not make the law

What does the legislative branch do for the insurance industry?

- provides licensing of agents and enacts laws and requirements for doing business in a particular state

How can SS be taxed?

- up to 85% benefits maybe taxed - thresholds are based upon combined income - combined income includes- AGI, nontaxable interest, foreign earned income and 1/2 of retirement benefit

What age is the catch up contribution and how much is it?

55 or older allows additional $1,000 contribution to HSA

Generally, for most workers, how many quarters of coverage are needed to be fully insured? A) 4 B) 20 C) 40 D) 80

C

John, who is retired to Miami, decided to purchase a condominium unit on the beach. Which of the following homeowners policies would be most appropriate for John to purchase? A) H0-3 B) H0-4 C) H0-5 D) H0-6

D

Dave earns $45,000 after tax this year and his self-maintenance costs are $8,000 per year. He believes that his salary will grow at 4% per year, his heirs can earn 6% on any investments, and he will work for another 26 years. What is his human life value insurance need?

N= 26 I= (1+.06)/(1+.04)-1*100= 1.923% PMT= $45,000-$8,000= $37,000 FV= 0 PV= ?? $751,482.34

moop example

- a max out of pocket (Moop) only allows the insured to pay the max, no more

What is the SS benefit someone will receive each year if they delay retiring early?

- 8% (simple interest) each year a retiree delays their benefits (if born in 1943 or later) - 7.5% if they were born from 1941-1942 - decreases all the way to 5.5% in 1933-1934

What is res ispa loquitur?

- "the act speaks for itself" - doctrine of the law of negligence that permits the use of reasonable evidence when a specific explanation of negligence is not available - example= plane crashes implies negligence

Categories of social security

- 0.9% is only paid by the Employee

If I retire 3,4 or 5 years before normal retirement age how much of my benefit will I loose?

- 3 years early= 20% - 4 years early= 25% - 5 years early= 30%

What is an agent, general agent, independent agent and broker?

- Agent= legal representative of the insurer - general agent= represents one insurer, such as state farm or allstate insurance agent - independent agent= represents multiple, unrelated insurers - broker= represents the policy owner, not the insurance company

what happens if withdrawals occur prior to the start of the annuity?

- Annuities after 1982 and premature withdrawal, the withdrawals receive LIFO tax treatment - Any annuity prior to 1982 receives FIFO tax treatment

What is HO-2?

- Broad form - provides coverage on a broad peril basis (18 named perils) - fire, vehicles, lighting, smoke, windstorm, vandalism, hail, explosions, riots and civil commotion, theft, aircraft, volcanic eruptions, failing objects, ice/snow/sleet, overflow of water, bulging of appliances, freezing of plumbing/heating/air conditioning/sprinkler system and electrical currents

What is a health medical savings account (HSA)?

- HSAs have replaced MSAs - non qualified distributions before 65 are subject to income tax and a 20% penalty - HSAs provide employees/individuals seeking health care a tax deduction for amounts contributed to their accounts - eligibility= individual must have HDHP - disqualified if individuals are not covered by an HDHP, medicare participation, individuals who may be claimed as a dependent on another's return - no requirement for individuals with an HSA to use those funds for qualified medical expenses, allowing high income individuals to save on tax deferred basis for medical expenses in retirement

What is medicare part d?

- Prescription drug coverage -have co-pays and requires a premium

What is a DRC?

- delayed retirement - each year after normal retirement up to 70, the person can get 8% per year

What is actual cash value (ACV)?

- replacement cost, less depreciation

What does the judicial branch do for the insurance industry?

- rules on constitutionality of laws passed by the legislative branch - render decisions and interpretations regarding policy terms

What is universal life insurance B?

- same as universal A except that the death benefits vary directly with the cash value - universal B is more expensive then universal A because the death benefit is equal to a specified amount of insurance plus the cash value - total death benefit will typically rise

Who would we complain to if insurance companies are treating me unfairly?

- state insurance commissioner

what happens if someone is terminally or chronically ill and want to transfer life insurance policy for value?

- terminally or chronically ill= tax free - not terminally or chronically ill= tax free return of basis, ordinary income on cash surrender value over basis, and capital gains on the remainder

What is negligence per se?

- the act constitutes negligence, thereby relieving the burden to prove negligence - example= drunk driving

What is Res Ipsa Loquitur?

- the act speaks for itself - if an accident occurred, then there was negligence - examples= airplane crash

What is a peril?

- the actual cause of loss (wind, fire, tornado, earthquake, burglary and collision)

How are death benefits taxed?

- the beneficiaries are taxed

The principle of indemnity is: A) a person is entitled to compensation only to the extent that financial loss has been suffered B) insured cannot indemnity himself from both the insurance company and a negligent third party for the same claim C) the insured must be subject to emotional or financial hardship resulting from the loss D) the insured and insurer must both be forthcoming with all relevant facts about the insured risk and coverage provided for that risk

A B describes subrogation C describes insurable interest D describes concealment

What are the three rating agency's and highest/lowest rating for each?

A.M. Best's - highest rating= A++ to A/A- - Lowest rating= C/C- to D Moody's - Highest rating= Aaa to Aa1/Aa2 - Lowest rating= B1/B2/B3 to Cap Standard and Poor's (S&P) - highest rating= AAA to BBB - lowest rating= BB and lower CC

phil was employed by a large manufacturing company with well over 5k employees. Phil had family coverage under the company's group health care plan. Phil died in the current year. which of the following statements is correct based upon any COBRA election for Phil's dependents? A) phil's wife and minor children are eligible for 18 months of coverage B) phil's wife and minor children are edible for 36 months of coverage C) phil's wife and minor children are not eligible for cobra coverage D) phil's wife and minor children are eligible for 29 month coverage

B 18 for reduction in hours or normal termination 29 for employee that meet SS definition of disabled 36 for death, divorce, medicare eligibility or loss of dependency status by children of employee

Which of the following life insurance polices has a fixed premium, a cash value and death benefits that can fluctuate based investment performance? A) annually renewable term B) variable renewable term C) variable whole life D) variable lifetime annuity

C variable whole life has fixed premiums, death benefit is based on investment performance

All of the following statements regarding annuities are correct except? A) a deferred annuity provides income to the beneficiary at some date in the future B) a flexible premium annuity provides the insured with the flexibility to vary premium payments C) a joint and survivor annuity is an ideal way for parents to leave assets to their children D) annuity benefits consist of both return of basis and taxable income

C annuities don't leave anything to their heirs

When the insured is silent to a fact that a material to risk being insured, what has occurred? A) breach of warranty B) misrepresentation C) concealment D) breach of indemnity

C breach of warranty= you don't do something you agree to do misrepresentation= you say you don't smoke when you do breach of indemnity= you can't make a profit

All of the following statements are correct regarding personal auto policy part B (medical payments) coverage except? A) provides payments for medical expenses of an insured due to an accident B) provides medical payments if struck as a pedestrian C) provides payments for medical expenses for household pets if struct by the covered auto D) provides payments for medical expenses of anyone occupying the insured's covered auto

C does not cover animals, but does pedestrians

Which of the following is not a requisite for an insurable risk from an insurer's perspective? A) law of large numbers B) losses must be accidental, measurable and determined C) losses must not pose catastrophic risk for the insured D) the premiums must be affordable

C losses must not pose a catastrophic risk for the insurer and the insured wants to transfer catastrophic loss to the insurer

The underwriter of an insurance company is charge with the responsibility of achieving a profit within the risk parameters of the company. Which of the following is the underwriter's greatest challenge? A) setting premiums B) Motivating salespeople C) making sure that profit margins are correct D) managing adverse selection

D

Which of the following payments are not permitted from an HSA? I. dental expense II. cobra premiums III. long term premiums IV. medicare if you are 65 or older A) 1 and II B) II and III C) I, III, and IV D) all of the above are permitted

D

Which of the following would not be considered an insured person for the purpose of Part A (liability coverage) for a personal auto policy? A) you B) any family member C) any person using your covered auto with permission D) any person using your covered auto without permission

D

After a heavy rainstorm, Eric notices a small leak in his ceiling. Eric places a plastic cup underneath the leak and decides that he will call his roofer upon returning from a three week vacation that he starts tomorrow. Upon his return, the small leak is a larger leak to the point where his ceiling in the living room collapsed onto his car and ruined his electronics causing 30k in damage. The insurance adjuster determines that Eric did not take step to minimize loss. Did Eric violate his contract?

Yes, he did not work to fix the issue, before it got worse

Flood insurance

- 30 day waiting period, unless the flood insurance is being offered for the first time in an area - The national flood insurance program, provides subsidized flood insurance to property owners qualified areas - coverage uses two forms= coverage on dwellings and contents; coverage on other types of ACV basis is avaliable

What is an example of a split policy for automobile?

- 50/100/50 - 50k bodily injury per person - 100k bodily injury per accident - 50k property damage - fixed amount of coverage

What is the survivorship eligibility?

- a worker must be full insured (40 quarters) or currently insured is at least 6 quarters in the last 13 - child under 18 is covered as are caretakers of children under 16 -no coverage for spouse of a currently insured worker - coverage for spousal if the worker was fully insured

Summary of who should be covered for product liabilities insurance

- acts that can expose businesses to product liability include manufacturing a harmful product, selling a defective product, packaging the product inappropriately and providing insufficient directions/warnings

What is severity?

- actual dollar amount loss - more important than the probability of a loss

What is the difference between agent, general agent, independent agent and broker?

- agent= legal representative of the insurer - general agent= represent one insurer - independent agent= represents multiple, unrelated insurers - broker= represents the policy owner, not the insurance company

What is group whole life insurance?

- allows employees to accumulate savings for retirement through the cash value of a policy - premiums paid by the employer are taxable income to the employee

What is the principle of indemnity?

- an insured is only entitled to compensation to the extent of the insured's financial loss - insured cannot make a profit from an insurance contract

what is the principle of insurable interest?

- an insured must have an emotional or financial hardship resulting from damage, loss or destructions - property and liability insurance= must have insurable interest at the time of policy inception and at time of loss - life insurance= the insured only needs an insurable intent at the time of policy inception

What is excluded from homeowners policies?

- animals, birds and fish - articles separately described and specially insured - motorized land vehicles used off premises - aircraft and parts - furnishing on property rented out to others - property held as samples, held for sale or sold but not delivered - business data, credit cards and funds transfer cards - business property held away from residence premise

When should a whole life policy be purchased?

- anyone with lifetime or permanent needs - estate planning purposes to provide liquidity to pay transfer taxes - insured has a need for investment like performance/returns

Explain fixed annuities

- backed by the full faith and credit of the insurance company - will not loose in value

If I am driving my brothers car and get into an accident who covers the accident?

- both, my coverage would cover the driver and his would cover the car, unless I was not given permission to drive

Todd owns a house with a replacement value of 300k and is 50% depreciated. He purchased 200k of homeowners insurance with a coinsurance requirement of 80% and a $500 deductible. Todd experiences a $100,000 loss. What will the insurance company pay?

- coinsurance formula= face value/coinsurance*loss deductible coinsurance= 80%*replacement cost insurer covers the greater of actual cost value or replacement Should have in coverage= $300,000x.80= $240,000 (40,000 lower then he currently has of $200,000) ACV= $100,000x.5= $50,000 $200,000/(.80*$300,000)*$100,000= $83,333 insurer covers: $83,333-$500 deductible= $82,833

What are the elements needed to make a contract valid/legal?

- competent parties, offer and acceptance, legal considerations and lawful purpose COALL

What is HO-5?

- comprehensive form - covers open perils or all risks basis - similar to HO-3 except it provides personal property protection on an open perils instead of broad peril basis

What is the HO-6?

- condominium owners form - covers inside structure of their units and all contents - outside is covered by the association - covers the same perils provided in HO-2 and HO-4 (broad perils) - does not provide building coverage other then for additions or alterations - minimum amount of personal property coverage to be purchase is 6k (like HO-4)

Patient protection and affordable car act (PPACA)

- individuals 26 and younger can still be on parents insurance plan to avoid penalty - plan categorizes= bronze (lowest premium covers 60% benefit cost), silver (covers 70%), gold (covers 80%) and platinum (highest premium, covers 90% cost) (must purchase from the health insurance marketplace to qualify)

What is the burden of proof?

- initially borne by the injured party - in civil cases it is the preponderance of the evidence (more than 50%)

What is part D coverage for automobile insurance?

- coverage for damage to the insured's automobile - comprehensive and collision coverage are designed to repair or replace the automobile when damaged - collision= coverage if the automobile is in an accident with another vehicle or object like a fence, tree, garage door, lake etc. or a car that rolls due to ice or heavy rain - comprehensive= helps to pay to repair or replace a vehicle that is stolen or damage in an incident that is not a collision (fire, theft, vandalism, weather related, running into animals, riots and falling objects) - exclusions= public livery (cab), radar detectors, most electronic equipment, nuclear damages, auto used without permission, auto used in insured's business the radar detectors (not apart of the car is covered under homeowners insurance)

What happens if someone commits suicide?

- coverage is excluded if suicide is committed within one or two years of purchasing the policy - if suicide is committed within the exclusion period, premiums are returned

what is the disability eligibility requirements?

- covered if age 31 or older, full insured (40 quarters) and earned 20 quarters in the last 40 -if between 24-30 a worker has earned 1/2 of the quarters available since 21 to disability -if ages 21-24 a worker has earned 6 quarters in the last 12 quarters

Who cares an errors and omissions coverage?

- covers negligent acts, errors and omissions - the following professionals will carry an E&O policy (accountants, lawyers, engineers and financial planners) - based on the pic our recommendation= add a tail to claims made policy, extends claim policy for people like surgeons who claim after the surgeon retires

What is in coverage B?

- covers other structures (10% of coverage A amount) - detached structures on the property covered by homeowners insurance - examples= detached garages, greenhouses and storage buildings - coverage is 10% of coverage A (dwelling) limit - losses to other structures are insured on a replacement cost basis **other structures used for business purposes are not covered**

What is coverage C?

- covers personal property (stuff in the house) - includes tangible moveable property owned by the insured (such as furniture, entertainment, entertainment equipment, music collections, videos, paintings, lamps, books and clothing) - limited to 50% of coverage A (dwellings) - losses to personal property are insured on actual cash value basis - replacement cost endorsement can be purchased to enhance personal property coverage - limits are placed on personal property losses, cash coin collection ($250) and jewelry ($1,500) - hint= look on statement of financial position, if you see jewelry, artwork, expensive assets or coin collection (make sure a personal property endorsement is added, which pulls it out of Coverage C and covers it separately at it's value)

What is part F coverage for automobile insurance?

- covers the insured driving in any U.S state and Canada (NOT mexico) - exclusions= intentional acts, normal wear/tear, losses resulting from violations of the law, or losses that are catastrophic to the insurer (nuclear war) - other exclusions= some policies only cover household residents, excludes persons named in endorsement, racing, vehicles with less then 4 wheels and intentional acts premiums= based on age, martial status, driving record, location the care is kept, type of car, use of car/milage, credit score,

what is the taxation of life insurance?

- death benefits are generally excludable from taxable income - dividends earned on cash value are not taxable until withdrawn - cash value is not taxable if withdrawn at death - loans against life insurance are tax free (exception if it was a MEC therefore withdraws are treated using LIFO method)

What happens if you want to transfer death policy for value?

- death benefits are taxable to the transferee to the extent proceeds exceeds basis -exceptions to transfer for value rule: 1. transferred to the insured 2. transfered to a business partner of the insured 3. transfered to a partnership of the insured 4. transfered to a corporation in which insured is a shareholder or officer 5. transfer that results in carryover basis from transferor to transferee

What are health maintenance organizations (HMOs)?

- delivers compressive health care in return for periodic payment (premium) - care is managed by a primary care physician who determines what care is received - disadvantage= no coverage outside of HMO

What is subjective risk?

- differs based on an individual's perception of risk - for example= Tom recently moves, his neighbors tell him the police hand out a lot of speeding tickets, so he buys a radar detector

What is objective risk?

- does not depend on an individual's perception, but is measurable and quantifiable - measure the variation of an actual loss from expected loss - examples= statistics published for a number of speeding tickets written per drivers living in a city would confirm or disprove the subjective risk from tom's example

Describe major medical insurance

- doesn't cover eye insurance - usually has a coinsurance (80/20) - each family member must satisfy a deducible (usually a max of 3 per family, once 3 are met, then the entire family is satisfied) - coinsurance applies to each family member - stop loss= make sure deductible is paid first, next make sure coinsurance is satisfied (higher amount is what the insurance pays, lower amount is insured pays), note the insurance company will only pay up to stop loss amount

What is part E coverage for automobile insurance?

- duties after an accident or loss - mus notify the insurer, file proof of loss, file police report - upon loss to the insured's property, the insured is required to fulfill a number of obligations before loss can be settled 1. give notice immediately the the insurance company of the time, place and circumstances as well as names and addresses of witnesses 2. property the property from more damage 3. prepare inventory loss to building and personal property 4. file write proof of loss

What is a no fault insurance?

- each party involved in an accident files a claim and collects from their own insurance company for any injuries sustained

What is the needs approach?

- evaluates the income replacement and lump sum needs of survivors in the event an income producers ultimate death - common needs include= lump- sum cash, final expenses, debt repayment, education expense needs emergency needs, income needs, readjustment period needs, dependency period needs and spousal income needs - any future cash or income should be discounted using the PV or future cash flow

What is cobra?

- extension of group health insurance with the same coverage - employer can charge 2% for administration expenses (102% of actual insurance costs) - coverage covers employee, spouse and dependent children - eligibility= covered employee dies, employee voluntarily or involuntarily terminated, hours are reduced to part time, covered employee separates from spouse, employee become eligible for medicare, dependent child no longer eligible for coverage - only offered at companies with more than 20 employees - employees have 60 days to make a cobra election after termination - coverage 18 months for reduction in hours or normal termination (quit, retired or fired) DOES not cover those who are terminated for misconduct 29 months if employee meets SS definition of disabled 36 months for death, divorce, medicare eligible or loss of dependency status by children of employee

Tell me about medicare benefits

- federal health insurance for people 65 and older - three parts A, B and D - eligible persons are automatically enrolled if at least receiving retirement benefits or any age if receiving SS disability for at least 2 years

What is universal life insurance A?

- flexible premium - adjustable death benefit - if the cash gets high enough, the death benefit will increase - normally, the amount of insurance purchased declines as the cash value rises, keeping the total death benefit level

Social security beneficiaries (spousal divorce)

- for a current spouse aka married to collect benefits, their spouse needs to be collecting SS benefits - if someone gets divorced, the husband for instance does not need to be collecting benefits for the ex wife to benefit (just need to be married for 10 years, not remarried by age 60 and must be age 62)

Are contributions to HSAs deductible?

- for the employee who contributes - for the employer of contributes - for any eligible family member who receives contributions on their behalf

when does the taxation of SS occur?

- happens regardless of age or person benefiting (child, spouse, parent etc.) - combined income above 44k will result in 85% taxing of SS benefits or above 34k if single; between the hurdles up to 50% taxation and less then thresholds no tax

What is a hazard?

- hazard is a condition that increases the likelihood of a loss occurring

What is the collateral source rule?

- holds that damages assessed against a negligent party should not be reduced simply because the injured party has other sources of recovery available like insurance/employee benefits

What is coinsurance?

- homeowners insurance requires policy to cover at least a stated percentage of the property value - usually 80% FMV of home (look in statement of financial position, only insure the home not the property LOOK in footnote) - if the coverage is less than the coinsurance requirement, then insurer pays the great of actual cash value or the following formula (amount of coverage purchased/coinsurance)*loss-deductible coinsurance= 80%*replacement cost - 80/20= means 80% covered by insurer, 20% by insured (would have a lower premium then 90/10)

What is medicare part A?

- hospital insurance (covered places)= places include inpatient hospital care and health care, semi-private rooms, meals, operating, recovery room, lab tests and x-ray, hospice, skilled nursing facility following a covered hospital stay - benefit period determines amount paid by insurer - a benefit period on the first day the insured is in the hospital and ends after 60 days of no further skilled care -deductible is $1,340 per period (first 60 days is deductible) - beyond 60th day= $335 for days 61-90 per day; $670 for days 91-150 for each lifetime reserve day (use or loose); $167.50 per day for skilled nursing 21-100 days for 20 days after a hospital stay are 100% covered - custodial care not provided (nursing facilities that provide help with daily living

What are accelerated death benefits?

- if an insured deb comes terminally ill, the insured may take an accelerated death benefit - any payment are deducted from the policy's face value - life expectancy must be 24 months or less - income from an accelerated death benefit is not taxable to the insured no restrictions as to where the benefit can be used for example medical care, home heath care, nursing home, trip around the world and new car

When is normal retirement, give year ranges as well?

- if born before 1938= 65 years old - if born between 1938-1942= add two months per year onto 65 years old - born between 1943-1954= 66 years old - born between 1955-1959= add 2 months per year onto 66 - born in 1960 and later= 67 years old

What is the taxation for disability income insurance?

- if employee pays the premium with after tax dollars, then premium is not deductible and benefits are tax free - if employer pays the benefit then premiums are deductible to employe and benefits to employee are taxable - if employee pays premium with pre--tax dollars (cafeteria plan) then employee is taxed

What happens if I want to retire before normal retirement?

- if full retirement is 65, retire at 62= 80% benefits - if full retirement is 66, retire at 62= 75% benefits - if full retirement is 67, retire at 62= 70% benefits - benefits are reduced by 5/9 for each month, in the first three years that a worker retires early - benefits reduced by 5/12 for each month beyond 3 years

How do you apply for medicare?

- if the insured is receiving SS at 65 then he is automatically enrolled in medicare - if the insured is not receiving SS at 65 then he must enroll

What is the principle of utmost good faith?

- if you tell your insurance company you are going to do something and don't then that a breach (warranty) - representation= misrepresenting your age on a life insurance application will NOT void a contract - concealment= material to risk

What are the reasons to buy life insurance?

- income replacement for a primary wage earner of a family - income from readjustment period after the death of a loved one - financial support for dependents or elderly parents - children's education may need funding - paying off debts - providing income to surviving spouse

What are the limitations of term life insurance?

- increasing premiums for older age entry or renewal - term policies may not meet permanent insurance needs

what is a variable annuity vs. index annuity?

- index annuity= tied to the performance of a index - variable annuity= holds mutual funds, allows diversification of investments

What do coverage E and F not cover?

- injuries or damages that: - are expected or intended by the insured - resulting from the insured's business - resulting from the rental of the the premises - arising out of premises the insured owns, rents or leases to others that not not been declare an insured location - arising out of ownership of watercraft, motorized vehicle and aircraft - caused by war or nuclear weapons - caused by transmission of diseases

What is a pure risk?

- insurance only covers against "pure risks," there is a chance of loss or no loss -examples= house fires, auto accidents, personal illness and death

What is adhesion?

- insurance policy is basically take it or leave it - no negotiations over terms and conditions - any ambiguities in an insurance contract are found in favor of the insured

What is a managed care (primary care physician PCPs)?

- insured accesses care via a primary care physician who provides services or refers to a specialist - consumer pays a small copayment or other deductible - health care providers agree to accept compensation provided under the planning

What are the steps to solve stop loss limit?

- insured always pays the deductible first - insured pays coinsurance percentage to stop loss amount - after paying coinsurance percentage of the maximum stop loss amount, insurer pays 100%

What is a subrogation clause?

- insured cannot receive compensation from both the insurer and a third party for the same claim

What is universal life insurance?

- insured may adjust premiums paid, face value of the policy and cash value - insured does not direct the investment portion of the cash value - cash value can be used to actually pay the policy premiums

What happens if you want to surrender policy prior to death?

- insured may surrender a policy prior to death and take cash value as lump sum, interest only or installment payments

What is part A of automobile insurance?

- liability coverage (bodily injury and property damage - covers others for which the insured driver is deemed responsible - some states have a split policy for bodily injury and property damage - a split policy is one in which the liability for bodily injury per person, bodily injury per accident and property damage are all separate (50/100/50) - 50/100/50 (split policy)= 50k for bodily injury per person, 100k for bodily injury per accident and 50k property damage - split policy has a fixed coverage amount - example (car accident) 50/100/25 person A= 75,000 Person B= 40,000 Person C= 100,000 reduce 75k to 100k to 50k; overall coverage for each is 140k which is 40k over 100k coverage 100/300/75 person A= 75,000 (bodily injury) person B= 40,000 (bodily injury) person C= 150,000 (bodily injury) C is dropped to 100,000; add all coverage 215k (75k+40k+100k), but 100k is your max

How is a mec vs. other life insurance like universal life taxed?

- mec= taxed as ordinary income, until cash value equals accumulated premiums (LIFO basis interest first) remember for mec 10% penalty on withdrawals before 59 1/2 - not a mec= taxed on a FIFO basis (basis first), withdrawals considered a return of principal until accumulated premiums have been distributed, then taxed as ordinary income (no 10% penalty)

What is part B automobile coverage?

- medical payments coverage - covers medical expenses sustained in an accident - covers the insured plus family or others occupying the automobile - family and insured coverage= medical if hurt while driving or while being a passenger or if struck by a car as a pedestrian - other persons coverage= covers if in insured own automobile as driver or passenger, doesn't cover if they are passengers in non-owned insured vehicle - hint= if you drive a bunch of people around, you should make sure to have a higher policy

What is coverage F?

- medical payments to others - don't have to determine negligence (throw a party, someone gets injured, they are covered) - if you take a dog to the dog park and it bites someone it is covered - pays all medical expenses without regard to the liability for others arising out of the insured's activities, premise or animals - medical expenses must happen within 3 years - coverage= 10k per person per occurrence - does not pay for medical expenses incurred by the insured or family, unless they are a resident employee

What is a MSA?

- medical savings account - MSAs were only permitted for self employed and employees of a small business (less than 50 employees) - only the employer or the employee, not both can make contributions - same distribution rules for HSAs (subject to income tax and 20% penalty if taken before 65)

What is HO-8?

- modified form policy - provides repair cost coverage instead of replacement cost for damage to property - provides functional replacement cost - typically insures older home that need more workmanship

What is aleatory?

- money exchanged may be unequal, in other words there is a small premium, but the insured may receive a larger benefit

What is group term life insurance?

- most common form of insurance offered by employers - premiums for the first $50,000 in coverage is tax free - premiums paid by employer are tax deductible - premium paid by the employees are paid with after tax dollars

What are the six automobile coverages?

- most sold in the US PAP which covers liability, property damage, automobile and medical payments - Part A- liability coverage - Part B- medical payment - Part C- uninsured motorist - Part D- coverage for damage to the insured's automobile - Part E- duties after an accident or loss - Part F- general provision

What are the general exclusions from most homeowners policies?

- movement of ground (earthquakes, volcanic eruptions, mud/landslide and sink hole), ordinance or law regulations the construction of a building/structure, war, nuclear hazards, power failure, intentional act and neglect

What is the retirement eligibility?

- must be "fully insured" (40 quarters of coverage) - quarter of coverage= based on dollar amount earnings - to earn a quarter in 2018= 1 quarter= $1,320 in wages subject to SS (max 4 credits per year, must work minimum of 10 years) - retirement benefits is funded with OASDI tax of 6.2% on wages subject to SS (up to wage base of $127,200 2018) - OASDI is for old age, survivor and disability insurance - OASDI tax is 7.65% for total medicare - additional medicare tax is 0.9% on wages, compensation or self employment income in excess of the graph information

What is a preferred provider organization (PPOs)?

- network of health care providers with whom an employer or insurance company contracts - provides discount on services - a PPO preserves employee's options to choose a provider outside of network - high rate or reimbursement when using provider in the organization - higher coinsurance and premiums then HMOs

What is the national association of insurance commissioners (NAIC)?

- no regulatory power over the insurance industry, but is involved in accrediting state insurance regulatory offices (done at the state level) - provides a list of insurance companies based upon financial analysis - ratio measure the financial health of insurance companies

Does medicare coverage extend outside of the US?

- no unless - exceptions= you are in the US when a medical emergency occurs and the foreign hospital is closer then the US one; you are traveling through Canada without reasonable delay by the most direct route between Alaska and another state, the Canadian hospital is closer then the US one

Does medicare cover out of country?

- no, it will not - should get international health insurance policy (30 days) or medigap (more limited)

Will annuities ever loose value?

- no, unless the insurance company goes bankrupt

difference between HMOs and PPOs

- note if you have a client who has multiple homes in various states a HMO would not be ideal

What is an estoppel?

- occurs when an insurance company continues to take late premiums from the insured aka the insurer is passing up on a waiver (can only be approved by president, VP or secretary of the company) - after the 35 time of passing up the waiver and not canceling the policy an estoppel could denied the insurer from canceling on the insured, based on their past history

What is parol evidence rule?

- once a contract is placed in written form, all previous understanding may not contradict the written conract

What is unilateral?

- only one promise is made by the insurer which is to pay in the event of a loss - insured is not obligated to pay premiums - if premiums are not paid, no promise by the insurer

What is an exclusion in an insurance contract?

- outlines what will not be covered - may exclude the cost of a private hospital room when semi-private will do - may exclude items such as cash, collectibles or business property - exclusions= include neglect (termite damage), flood, earthquakes and war

What is medicare part B?

- pays 80% of approved charges, you pay 20% - does not cover dental care, dentures, cosmetic surgery, hearing aids and eye exams -provides coverage for doctor visits, lab test, ambulance, outpatient therapy, clinical research, durable medical equipment (wheel chairs, hospital beds, walkers, oxygen), mental health (inpatient, outpatient, partial hospitalization) - does not cover dental care, dentures, cosmetic surgery, hearing aids and eye exams -deductible is $183 per year - insured is automatically enrolled in Part B, unless they opt out - can cover the parts not covered by getting a medicare supplement or medigap policy (not needed if you have medicare part C)

What is a social security black out period?

- period of time after a worker who is fully insured (40 credits) died and the spouse has not received benefits yet

What is coverage E?

- personal liability -covers claims that result from bodily injury and property damage to others, when the insured or their family members are responsible - minimum coverage= $100,000 per occurrence - insurer will cover legal defense/settlement costs - hint= look and make sure the umbrella policy does not have a requirement on coverage in liability, if there is a gap, increase to cover

What is a PLUP?

- personal liability umbrella policy - target 1-3 million - most have liability insurance through auto and home insurance (minor coverage) - two factors to consider if buying a PLUP= net worth and earning power - it is excess liability that covers anything in excess of other liability policies - protects against being sued - exceptions to coverage= criminal acts and intentional acts - slander and libel are covered

example for disability benefit

- pic dictates how to calculate disability benefits if you become disabled before 40 quarters

What are the long-term insurance benefits?

- premiums are tax deductible and limited based upon age of insured - benefits are tax free as long as the policy is qualified - qualified if the person is expected to need care for at least 90 days, unable to preform 2 or more actives of daily living and suffers cognitive impairment

What is a whole life insurance or permanent life insurance policy?

- premiums paid as agreed - they pre-fund future higher mortality costs using present value analysis - premiums= single premium to level premiums over a fixed term or level premium for life - have a savings/investment comment - cash values may be used for loans if the policy is surrendered - cash value usually have a minimum guaranteed rate of interest - advantages= tax deferred growth of cash value, provides permanent protection until age 120 - disadvantages= premiums are expensive, no flexibility with premium payments, cash value grows gradually

What are section 1 and 2 coverages for personal property and liability insurance?

- property insurance coverage is detailed in section I of most policies Section 1 coverages: - Coverage A= dwelling - Coverage B= other structures - Coverage C= personal property - Coverage D= loss of use Section II coverages: - Coverage E= personal liability - Coverage F= medical payments to others

What are the goals for state insurance regulation?

- protect the insured - maintain and promote competition - maintain solvency of insurers

What is HIPPA (heath insurance portability and accountability act)?

- protects worker's ability to obtain health insurance when changing jobs, being laid off or retiring - allows individuals to obtain coverage without restrictions on preexisting conditions if switch from one group plan to another - 21 month exclusion window (18 months of late enrollment) for new employees - credible coverage is any health coverage held immediately prior to applying in the new plan and after significant breaks (63 or more days) in coverage - no longer allows the imposition of preexisting condition clause

What is term life insurance?

- pure insurance protection which pays a predetermined sum if the insured dies during a specified period of time - protection ceases at the end of the term unless renewed - face amount may be level or decreasing - inexpensive at young ages - premium may be level or increasing annually

What are the characteristics we want in a term life insurance?

- renewable= without evidence of insurability - convertible= convert to whole life without evidence of insurability for a particular period - waiver of premium= if the insured becomes totally disabled, the premiums may be waived during the period of disability

What is HO-4?

- renters policy - does not cover dwelling or other structures - provides personal liability coverage - covers personal contents (coverage C) on a broad peril basis - minimum personal property coverage that must be purchased= 6k (like HO-5) - provides for loss of use of premise equal to 30% personal property coverage

What is vicarious liability?

- responsible for the acts of others - example= bartender serving alcohol to a customer who later causes an accident - example= parent responsible for the acts of their children

What are the three forms of restitution?

- restitution is paid if someone has a tort or civil wrongs against another 1. intentional interference= an intentional act committed against another that causes injury, not covered under liability insurance (slander aka verbal statement and libel aka written statement are covered) 2. strict and absolute liability= occurs as a result of legislation in which one part is held legally liable regardless of who is responsible for injury, example is workers comp laws (under strict liability the responsible parities have few defenses, under absolute they have no defense) 3. negligence= an act or failure to act with appropriate care, and bodily injury or property damage results from such action or inaction, judge uses "prudent man standard" aka if the same were to happen to someone else would they act in the same manner, direct negligence acts have a direct impact to an individual, parents are held liable for acts against their children, employers are liable for those against employees

Define social security disability benefit

- severe mental or physical impairment for 5 months, expected to prevent the worker from performing work for at least 1 year or results in death - benefits being paid depends on credits earned and age of the worker when disabled

What are endorsements?

- some of the perils that are excluded from the standard homeowners insurance policy can be covered by purchase of an endorsement - supplement to an existing policy, to provide additional coverage - examples of endorsements that can be purchased= sink hole collapse, earthquake, sewage backup and refrigerated property coverage

What is HO-3?

- special form - provides coverage on an open perils or all risks basis - if a peril is not covered in the policy, the policy covers losses associated with it - covers broad form of perils (12)

What is the law of large numbers?

- specifies that when more units are exposed to a similar loss the predictability of such a loss to the entire pool will increase - increase the pool of individuals the more accurate a actuary will be with determining risk, therefore help in making sure the insurance premiums are fair - helps to reduce objective risk

Where is regulation done for the insurance industry?

- state not federal level

What level is the regulation done for insurance? Who regulates insurance?

- state not the federal level - legislative branch= provides licensing of agents, enacts laws/requirements - judicial branch= rules on constitutionality of laws passed by legislative branch - executive or state insurance commissioner= administers, interprets and enforces insurance laws

What is the needs analysis?

- taking into consideration how life would be like without a spouse - considers the following: 1. funeral costs 2. medical expenses 3. estate taxes 4. probate fees 5. readjustment income 6. child care needs 7. special exceptions 8. education funding then subtract out existing premiums that cover some of those and assets set aside to meet 1-8 - totals the amount of death benefit needed

What is adverse selection?

- tendency that a person with higher-than-average risks will purchase or renew insurance policies - premiums are based on ratio between favorable and unfavorable risks in the pool - managed through underwriting, denying insurance on the front end and raising premiums on the back end

What is replacement cost?

- the current cost of replacing property with new materials of like kind

When can cobra coverage be terminated before the end of the term coverage?

- the employer terminates its health plan for all employees as a result of the company going out of business - the employee or beneficiary fails to make premium payments - the employee becomes covered under any other plan providing medical care

What is conditional?

- the insured must abide by the terms and conditions of the insurance contract - terms and conditions are not followed, the insurer may not pay a claim

What is a stop loss?

- the maximum amount that the insured must pay in coinsurance payments

what happens to SS if a marriage ends and one spouse remarries someone much younger, then they have a kid?

- the younger spouse can collect SS up until the time that the kid turns 16, then they can collect again once they turn full retirement age - collect 50% PIA up to age 16 if spouse is alive, 75% up to 16 if deceases at fully insured

What are riders and endorsements?

- they are written additions to an insurance contract - allow customized insurance contract for items that may be limited in coverage under the normal terms

What is the difference between traditional life insurance and a modified endowment contract (MEC)?

- traditional life insurance= loans and withdrawals are from basis first (FIFO) - MEC= loans and withdrawals are from interest first (LIFO)

What is part C coverage for automobile insurance?

- uninsured motorist coverage - referred to as UM or UIM coverage - if the uninsured or underinsured party is at fault, this coverage pays property/bodily injury - kicks up under-insured medical coverage up if their policy runs out

What is the 7 pay test?

- used to determine if something is a mec - if someone puts so much money into a life insurance plan in a short period of time, to the point that it would be paid for in 7 years, then this is a mec - people were using this as a tax shelter, so much so that congress/IRS decided to treat a mec as an investment not life insurance - no change in death benefit, but if you access the money before death, then you will get punished - dividends= not taxable, considered return of basis (or premiums) if divds exceed premiums then taxed - withdrawals= Mec is taxed on a LIFO basis (interest first), taxed as ordinary income until cash value equal accumulated premiums, subject to 10% penalty if withdrawals are before 59 1/2

What is the difference between void versus voidable?

- void contract was never valid, lacks the four elements competent parties, offer and acceptance, legal consideration and lawful purpose (COALL) - voidable contact is a valid contract that allows cancelation by one of the parties however the other party is bound by the agreement (example a minor enters into a contract to purchase a car, the contract is valid, but voidable by the minor, the car dealership is bound by the contract)

What are characteristics of insurance contracts?

1. adhesion= take the contract or leave it 2. aleatory= money exchange may be unequal, small premium large benefit 3. unilateral= only one promise made by the insurer which is to pay in the event of loss 4. conditional= must pay premium

What are the three types of term life policies?

1. annual renewable term (ART)= premiums increase annually, no cash value, death benefit is fixed at face amount of policy, advantages (pure death benefit protection that is inexpensive, insured receives a maximum death benefit for each dollar in premiums), disadvantages (may become too costly at older ages, no savings component and premiums increase annually) 2. Level term= premiums are level for a period of time, no cash value, death benefit is fixed at the face amount of policy, advantages (premiums remain level, provides pure death benefit at an inexpensive amount, maximum death benefit for each dollar of the premium), disadvantage (insured overpays premium initially and no savings component) 3. Decreasing term= premiums are level, no cash value associated and death benefits decrease over the term of the policy

What are the defenses to negligence?

1. assumption of risk= injured party full understands/recognizes the dangers that were involved in activity and chose to proceed 2. contributory negligence= there is evidence that the injured party did not look out for their safety 3. comparative negligence= amount of damage is adjusted to reflect injured party's proportion of contribution to the cause of the injury 4. last clear chance rule= claimant who is endangered by his own negligence may recover if the defended has a "last clear chance" to avoid the accident

What are the four risk management techniques?

1. avoidance 2. retention 3. reduction 4. risk sharing/transfer

What are the three forms of homeowners insurance?

1. basic coverage= protects homeowner from losses associated with the following 12 perils (fires, vehicles, lighting, smoke, windstorm, vandalism, hail, explosions, riots or civil commotion, theft, aircraft and volcanic eruptions) 2. broad coverage= provides losses from 18 named perils (12 from basic coverage plus the following 6) failing objects, the weight of ice/snow/sleet, accidental discharge/overflow of water, sudden/accidental cracking/burning/bulging appliances, freezing of plumbing systems/heating/air conditioning/fire sprinklers and damage from electrical currents 3. open peril coverage= provides protection from losses associated with all perils, except those that are excluded (strength H03 everything but those excluded)

What are the types of damages from a tort?

1. bodily injury= likely medical expenses, loss of income, pain and suffering, mental anguish etc. examples=special damages for measurable loss (loss of limbs); general damages compensated for intangible losses (pain and suffering); punitive damage are amounts assessed against negligent party as punishment for the act 2. property damage= actual monetary loss

What are the dividend options for participating whole life insurance?

1. cash 2. accumulate at interest= companies invest the divd and they are tax free 3. reduce premiums= decreases the out of pocket expenses for premiums 4. paid-up additions= purchases additional insurance each year regardless of health or occupation 5. one-year term= adds term insurance each year to the policy face amount equal to cash value of the policy CRAP-O

What are the life insurance nonforfeiture options?

1. cash surrender value= insured receives the accumulated cash value when terminating the life insurance policy 2. reduce paid-up insurance= insured receives the cash value in the form of a paid up policy with a smaller face amount 3. extended term insurance= the insured receives the cash value in the form of a paid-up policy for a specified duration, with the same face amount as the original policy

what are the six steps of risk management?

1. determine the objectives of the risk management program 2. identify the risks to which the client is exposed 3. evaluate the identified risks as to probability of occurrence and potential loss 4. determine alternative for managing risks, and select the most appropriate alternative for each 5. implement the program 6. evaluate, monitor and review D-I-E-D-I-E (dont insure everything square it)

What are the three types of authority?

1. express authority= given through an agency or written agreement, insurer is responsible for acts of an agent based on express authority 2. implied authority= authority that the public perceives and a valid agreement exists; insurer is still responsible even if a client is misled 3. apparent authority= is when the insured believes that agent has authority to act on behalf of the insurer when in fact, no authority actually exists; if an agent represent that insured can pay premium late, but is wrong, then the insurer is still responsible

What are the life insurance provisions?

1. grace period= 31-61 days after premium due date in which policy remains in force 2. misstatement of gender or age= younger persons and women pay less for life insurance, misstatement of age will not void contract

What are the four traditional medical expense insurance?

1. hospital expense 2. surgical expense 3. physician's expense 4. major medical= covers hospitalization, physician and surgeon fees, physical therapy and prescription drugs, eye exams/dental are excluded

What are the types of annuities?

1. immediate annuity= payment being immediately, purchased with a single lump sum 2. deferred annuity= payments being at some future date, purchased with either a lump sum or periodic statement premiums 3. flexibel premium deferred annuity (FPDA)= allows insured to vary the premium paid, income is a function of total premiums paid 4. single prime deferred annuity (SPDA)= lump sum payment of premium, earnings accumulate tax free until distributed 5. fixed annuity= annuity accumulates a fixed interest rate over a period of time, provides more security than a variable annuity contract 6. variable annuity= owner may invest in stock/bond mutual funds, no guarantee of return on investment, used if client wants to keep pace with inflation 7. equity indexed annuity= linked to an index, 1-10 years in term, indexing method annual reset/high watermark approach/point to point method

What are the requisites for insurable risk aka what characteristics are necessary in order for it to be insurable?

1. large number of homogeneous exposure units 2. losses must be accidental from insured's view 3. losses must be measurable and determinable 4. losses must not pose catastrophic risk for the insurer 5. premiums have to be affordable

What are the long-term care options?

1. medicaid= for nations poor, benefits paid by government at either state, federal or combination of both, coverage is based on a person's assets 2. medicare= available for those who have SS, benefits are extremely restrictive, only pays out if the patient will improve in condition 3. continuing care retirement communities 4. private long term care policy= covers care not covered by health insurance (skilled nursing, intermediate nursing, custodial care, home health care, assisted living, adult day care and hospice care) - to be eligible you must be chronically ill (unable to perform 2 of 6 ADLs eating, bathing, dressing, transferring from bed to chair, using toilet and continence) or suffer from cognitive impairment (behavior threatens own/others health) - if self employed= premiums can be deductible above the line - C corp= can discriminate as to who gets a policy, no dollar limit, can give company a huge deductible

What are the three types of a hazard?

1. moral hazard= character flaw, would lead to filing a false claim (example someone breaks into your car and steal a purse, you tell the police it was worth 10k but only worth 100) 2. morale hazard= indifference created because a person is insured (example beth runs into the grocery store with her car running/unlocked, she isn't worried, since it is insured) 3. physical hazard= tangible condition that increases the chance a peril occurs (example icy, wet roads, poor lighting or defective equipment)

What are the elements of a valid contract?

1. offer and acceptance 2. legal competency of all parties 3. exchange of consideration 4. lawful purpose

what are the four types of whole life insurance?

1. ordinary life= pays premiums until 120 or death, cash value increases to face at age 120 and death benefit is level throughout term 2. limited pay life= premiums are higher then ordinary life, since premiums are paid until a certain time 3. variable life= cash value is invested in stock/bond/money market mutual funds, opportunity for higher returns on cash value with variable life, death benefit varies based on investment performance 4. current assumption whole life (CAWL)= LO CAWL is low premium assuming a higher interest rate for credit, Hi CAWL assumes a lower interest rate than is currently being credited resulting in a higher premium

What are the goals of the state regulation of insurance?

1. protect the insured 2. maintain and promote competition 3. maintain solvency of insurers

What are the three categories of legal liability in which people are exposed to?

1. torts (civil wrongs)- must pay restitution 2. breach of contract 3. criminal offenses *liability insurance does not cover 2 or 3*

Paul earns $160,000 in salary this year. What is the total FICA tax? A) 11,007 B) 14,508 C) 19,334

128,400x.124= $15,822 (OASDI) 160,000x.029= $4,640 (medicare) Check video

Kevin is age 62 and collecting SS benefits. In order to begin receiving Medicare Part A benefits, he must: A) do nothing, coverage starts immediately at 65 B) file a separate application for Medicare upon his 65th bday C) do nothing, coverage starts immediately upon receiving retirement benefits, regardless of age D) file a separate application for Medicare upon his 67th bday

A

Which of the following life insurance policies provides the highest benefit, with the lowest premium, and is simply a pure death benefit policy? A) term insurance B) whole life insurance C) universal life insurance D) all of the above

A

When must an insurable interest exist for a property insurance claim? A) at the policy inception and time of loss B) at the policy inception only C) at the time of the loss D) either at the policy inception or at the time of the loss

A an insurable interest for life insurance must exist at the policy inception only

Mary Pat, age 62, has an annuity worth $100,000 and surrender charges of $10,000. Thirty-fivve years ago she purchased the annuity with $15,000. Today, she has a need for additional life insurance on her husband, Brad. Which of the following if the most appropriate strategy to provide mary pat with additional life insurance on her husband using her annuity? A) annuities the annuity and purchase life insurance on Brad B) surrender the annuity and purchase life insurance C) exchange the annuity for a post- 1987 annuity, then exchange for a life insurance policy D) exchange the annuity for a life insurance policy

A annuities cannot be exchange for a life insurance policy on a tax-free basis

Which of the following statements regarding loss frequency is true? A) loss frequency is the expected number of losses that will occur within a given period B) loss frequency is the potential size or amount of a loss C) loss frequency is a measure of the total amount of losses incurred by an insurer D) loss frequency is measure of variability between actual and expected loss

A frequency measure the number of losses expected to occur

Mike has the following split limits of coverage on his personal auto policy 100/300/50. Which of the following best describes Mike's coverage? A) $100,000 per person for bodily injury, $300,000 per occurrence for bodily injury and $50,000 for property damage B)$100,000 per covered auto, $300,000 per occurrence for covered auto and $50,000 for uninsured motorist C) $100,000 per person for bodily injury, $300,000 per occurrence for property damage and $50,000 for uninsured motorist D) $100,000 for property damage, $300,000 per person for bodily injury and $50,000 for property damage

A split policy reads bodily injury/per occurrence for bodily injury/property damage

Mike is injured in an auto accident caused by Tim. Mike collects bodily injury payments from his insurance company and sues Tim to recover as well. Tim's insurance company also pays Mike for the same injury. Which of the following principles has been violated? A) subrogation B) subjective risk C) adverse selection D) adhesion

A subrogation clause in an insurance contact prevents Mike from collecting from Tim and his insurance company

All of the following statements regarding the SS system are correct except? A) individuals over age 62 receive SS benefits, automatically qualify for Medicare B) for workers entitled to retirement or disability benefits, an ex-spouse may be eligible for benefits under the former spouse's work record C) Medicare part A is paid for by a portion of SS taxes collected, while premiums are charged for Part B D) disability benefits are paid to any age worker who meets the definition of disability and has earned enough credits, given their age

A SS starts at 65

Which of the following methods of dealing with risk does not match its action? A) risk avoidance: wear a hard hat on a construction site B) risk reduction: installing a sprinkler system in a building C) risk transfer: carrying automobile insurance D) risk retention: health insurance policy deductible

A avoidance would mean not going anywhere near a construction site

Eric walks into his insurance agent's office, signs a life insurance application, and gives his agent the first month's premium. As Eric is leaving his insurance agent's office, he is hit by a bus. Will Eric's wife be able to collect under the life insurance policy? A) Yes, as long as Eric was insurable (no terminal illnesses or life threatening pre-existing conditions) B) no, the policy was not delivered C) yes, regardless of whether Eric was insurable D) No, because signing the application and paying the first months premium is not considered offer and acceptance

A by signing the application and paying the premium, Eric is insured as long as he is insurable

Kevin buys a plasma television for $8,000. Three years later it's stolen and it's 50% depreciated. The same plasma television is now selling for $6,000, how much does Kevin receive from his insurance company? What is his ACV?

AVC is replacement cost- depreciation Replacement cost= $6,000 Less: depreciation ($3,000) Cash to insured= $3,000

Jennifer lives by herself and rents a one bedroom in Manhattan. Which of the following homeowners policies would be most appropriate for Jennifer to purchase? A) H0-3 B) H0-4 C) H0-5 D) H0-6

B

insurance regulation is primarily conducted at what level? A) securities and exchange commission B) state insurance commissioner C) federal insurance commission D) NAIC

B

Section II of H0-3 policy provides what type of protection for the owner? A) dwelling B) damage to others property C) loss of use D) personal property

B A, C and D are in section I

If a fully insured mother who is eligible for SS retirement benefits dies, which of her beneficiaries are eligible to collect benefits? I. her husband (52) with 14 and 15 year old children II. dependent parents age 83 and 85 of deceased mother III. her 18 year old daughter IV. her 60 year old ex-husband who has remarried for 3 years and was married to decedent for 12 years A) I only B) I and II C) I, II and IV D) I, II, III and IV

B I. works since the children are under 16 III. false, since the kid hit 18 and stops getting check at 18 IV. false since the husband got remarried before he turned 60, being married part is true since to collect you must have been married for 10 years

Kyle, age 33, is married and has a newborn son. Kyle is worried about providing for his family in the event of premature death. He is concerned about long-term affordability of life insurance, but is able to budget fixed amount for a period of time. Which of the following policies would you likely recommend? A) annually renewable term B) level term C) whole life insurance D) single premium annuity

B annually renewable will be too expensive and same with the others since there is a savings component

WJG inc, has 25 full time employees, but only 15 are covered under the group health care plan. Which of the following statements is true? A) WJG is not required to offer COBRA because only 15 employees participate in the group health care plan B) WJG is required to offer COBRA because they have 20 or more employees C) WJG is allowed to charge 105% of actual premiums for anyone who elects cobra coverage D) WJG can offer cobra to the employees who are not participating in the group health care plan

B company has 20 or more employees must offer COBRA C is false only 102% D is false since COBRA can only be offered to employees participating in the group health care plan

Christ walks into his insurance agent's office and notices his agent's name on a business card and the insurer's name on letterhead. If the agent has a valid agency agreement, what type of authority does Christ believe his agent has to enter into an insurance contract? A) express authority B) implied authority C) apparent authority D) none of the above

B implied authority is based upon the agents business card, letterhead and insurance company on the sign on the door express authority is the agency agreed between the insurance agent and insurance company apparent authority is when non authority actually exists

The subrogation clause is: A) a person is entitled to compensation only to the extent that financial loss has been suffered B) insured cannot indemnity himself from both the insurance company and a negligent third party for the same claim C) the insured must be subject to emotional or financial hardship resulting from the loss D) the insured and insurer must both be forthcoming with all relevant facts about the insured risk and coverage provided for that risk

B insurance company can collect against a negligent third party

Your home is covered by an open perils policy. Which of the following losses would be covered under your policy? A) termite damage B) your angry neighbor throws a brick through your glass door C) flood damage D) earthquake damage

B intentional acts of the insured are excluded from coverage; intentional acts committed by someone else is covered

Which of the following offers identical coverage for all forms of homeowners insurance policy? A) section I B) section II

B liability and medical payments are identical in section II

Jennifer is receiving annuity payments of $1,500 per month. Her life expectancy is 20 years. She purchased an annuity for $200,000. Jennifer lived beyond the 20 year life expectancy. What is the taxable amount from the annuity each year beyond the 20 year point? A) $833 B) $18,000 C) $8,000 D) $9,996

B monthly payment*12 months in a year $1,500*12= $18,000

Which of the following is correct regarding a peril and hazard? A) a hazard is the proximate or actual cause of a loss B) a peril is the proximate or actual cause of a loss C) a peril is condition that creates or increases the likelihood of a loss occurring D) none of the above

B peril is the proximate cause of a loss hazard is a condition that creates or increases the likelihood of a loss occurring

Which of the following is an insurable risk? A) objective risk B) pure risk C) subjective risk D) speculative risk

B pure risk involves the risk of loss or no loss

Ryan and jody are 68 and 72. They have significant assets that will be subject to estate taxes upon the second spouse's death. Which of the following life insurance policies would you recommend? A) annually renewable term B) second to die whole life C) first to die whole life D) ordinary whole life

B second to die allows the right amount of liquidity at the death of the second spouse

Which of the following statements regarding loss severity is true? A) loss severity is the expected number of losses that will occur within a given period B) loss severity is the potential size or amount of loss C) both A and B D) neither A or B

B severity measures the potential size in dollar

Which of the following life insurance policies contains a cash value savings component that reaches the face value of the policy at age 120? A) term B) whole life C) universal life D) lifetime annuity

B whole life pays premiums until 120 years of age when cash value equals the face of the policy

When must an insurable interest exist for a life insurance claim? A) at the policy inception and time of loss B) at the policy inception only C) at the time of the loss D) either at the policy inception or at the time of the loss

B an insurable interest for life insurance must exist at the policy inception only

All of the following statement regarding SS are correct except? A) the worker who takes early retirement benefits will receive a reduced benefit B) workers entitled to retirement benefits can currently take early retirement benefits as early as 59 1/2 C) to qualify for retirement benefits, a worker must be fully insured, which means that a worker has earned a certain number of quarters coverage under SS D) earning a designated amount of money, regardless of when it was earned during the year, will credit the worker with a quarter of coverage for the year

B early retirement is not 59 1/2 but rather 62

All of the following SS statements are true except? A) many private insurance companies sell medicare supplemental insurance policies B) medicare supplemental insurance policies help pay medicare's coinsurance amounts and deductibles, as well as other out-of-pocket expenses for health care C) if a worker applies for retirement or survivor benefits before his or her 65th bday, he or she must file a separate application for Medicare D) even if an individual continues to work after 65, he or she should signup for part A or medicare

C

Which type of hazard is a banana peel on the porch? A) Moral B) Morale C) physical

C

Jennifer is receiving annuity payments of $1,500 per month. Her life expectancy is 20 years. She purchased the annuity for $200,000. What is her taxable income each year from the annuity payment? A) $833 B) $677 C) $8,000 D) $10,000

C $1,500*12*20= $360,000 $200,000/$360,000= 0.555 exclusion and 0.444 inclusion inclusion= 0.444*$18,000= $8,000 **$18,000 comes from $1,500 (monthly payment)*12 (months in a year)

John has a major medical policy with a $250 annual deductible and a 80/20 coinsurance provision, with a $2,000 stop loss limit. John has emergency surgery that cost $8,000. How much will he have to pay for the surgery? A) $250 B) $1,600 C) $1,800 D) $2,250

C $8,000 (cost of surgery)- $250 (deductible)= $7,750 covered cost insured portion= $7,750*.20= $1,550+ $250 (deductible)= $1,800 insurer's portion= $7,750*.80= $6,200

Sam's normal retirement age is 65. He decided to begin SS early retirement benefits at age 64. How much will his benefit be reduces? A) 20% B) 10% C) 7% D) 5%

C 12*5/9= 7% 5/9th since early retirement is within 3 years after 3 years multiple by 5/12

Which of the following person's SS retirement benefits may be reduced the most for working and collecting benefits this year? A) a 71 year old business owner earning 300k B) a 62 year old who earned 24k through june and benefits begin in july C) a 64 year old earning 20k a year at present wrapping station in the mall D) a 63 year old receiving 40k a year from his company's defined benefit pension plan

C A- doesn't matter how much he made after hitting full retirement age B- the 24k stops before early retirement benefits are reduced (starts at age 63) D- benefit pension plan is NOT earned income

Your client has asked you what qualified as a covered auto under his PAP? A) your client's motorcycle B) company car his spouse drive C) friend's car D) a borrowed car that your client's daughter uses on a regular basis

C D is not covered, because that needs to be added to the policy

Jennifer is applying for life insurance, with her two children as beneficiaries. Jennifer has alway been told she looks young for her age and although she is 58, she stated that she is 28 on her life insurance application. What would the insurer be most likely to do if Jennifer's beneficiaries attempt to collect on the life insurance policy? A) void the policy B) require payment on premiums for a 58 year old insured C) recalculate the face value of the policy based on actual premiums paid D) bring a lawsuit against the estate

C insurance company will simply calculate how much coverage she could have brought based upon her real age and actual premiums paid

All of the following statements concerning whole life insurance are true except? A) level premium whole life insurance accumulates a cash value that eventually reaches the face value of the policy at age 120 B) whole life insurance offers permanent protection throughout the insured's lifetime C) whole life insurance can be participating, which means the insured must participate in self-directed investments for the cash value D) whole life insurance premiums paid throughout the insured's lifetime are ordinary life policies

C participating means the insured receives dividends

All of the following are true regarding COBRA except? A) the employer is allowed to charge up to 102% of health insurance premium B) COBRA must be offered because of voluntary and involuntary terminations of employees or reduction of hours from full to part time C) termination of employment requires 36 months of coverage D) divorce or legal separation requires 36 months of coverage

C termination of an employee is 18 months coverage not 36

Jeanette's full retirement age is 66 (she was born in 1945). Her expected monthly benefit is $1,000. If she waits until turning 70 years old to receive SS, what will be her monthly retirement benefit? A) $1,000 B) $1,080 C) $1,320 D) $1,360

C the increase in SS retirement benefits is calculated based on simple interest not compound 1,000x.132= $1,320

which of the following statements regarding the characteristics of an insurance contract is false? A) they are a contract of adhesion, which mean the insured must take it or leave it B) they are aleatory contracts, which means amounts exchanged may be unequal C) they are unilateral, meaning there is only one promise, which is a promise by the insured to pay the premium D) the contracts are conditional, which means the terms are under the condition that premiums are paid

C the promise by the insurer to pay is a loss occurs

Raymond lived in New Orleans during Hurricane Katrina. His home was destroyed by wind damage and he was forced to live in a hotel for three months. Which section of his homeowners policy would reimburse him for the increased living expenses associated with the hotel stay? A) dwelling B) other structures C) loss of use D) personal property

C only for increased living expenses

Brandon purchased a home theater for $10k two years ago. The replacement cost is $8k. The home theater system was destroyed in a fire. Brandon's insurance company estimates that the home theater was 40% depreciated. How much will Brandon receive if the home theater system is covered under actual cash value (ACV)? A) $2,000 B) $2,700 C) $3,200 D) $4,800

D $8,000-(.40*$8,000)= $8,000-$3,200= $4,800 if brandon had a $500 deductible he would actually receive $4,800-$500= $4,300

Randy's house slid down a hill in California after heavy rain storm and is a total loss. The relevant part of the insurance contract states, "earthquake is a general exclusion." Which party is likely to win in court and why? A) the insurance company because of the stated exclusion B) the insurance company because homeowner's policies do not cover mudslides C) Randy because of the aleatory principle D) Randy because the contract is adhesive

D Randy is most likely to win because ambiguities are decided in favor of the insured under the principle of adhesion

Sydney works at Joe's in Miami. Because of the seasonal nature of the business, Sydney only works two months out of the year and earns $100,000 in wages subject to SS. How many quarters of coverage does Sydney earn by working at Joe's two months out of the year? A) 1 B) 2 C) 3 D) 4

D based on her wage, wages subject to SS is $5,200 (4*$1,3300 can gain 4 quarters a year

All of the following statement regarding SS are correct except? A) monthly benefits can be paid to a disabled insured worker under 65 B) benefits can be paid to the divorced spouse of a retired or disabled worker entitled to benefits if age 62 or over and married to the worker for at least 10 years C) benefits can be paid to the surviving spouse (including a surviving divorced spouse) of a deceased insured worker if the widow(er) is age 60 or over D) benefits can be paid to the dependent parents of a deceased insured worker at age 59 or over

D benefits can be paid to the dependent parents of a deceased worker over 62

All of the following statements are correct regarding a personal auto policy part C (uninsured motorists) coverage except? A) payment for property damage B) payment for lost wages C) payment for pain and suffering D) payment for punitive damage

D cannot sue yourself for liability, does not pay for punitive damage

All of the following statements are correct regarding personal auto policy part D (coverage for damage to your auto) coverage except? A) collision with other vehicles B) comprehensive, which is fire, theft, or vandalism C) collision damages to a borrowed or rented vehicle D) collision, which includes contact with an animal or bird

D is coverage under comprehensive

which of the following is not a requisite for an insurable risk? A) a large number of homogeneous exposure units must exist B) insured losses must be accidental from the insured's standpoint C) insured losses must be measurable and determinable D) loss must not pose a catastrophic risk for the insured

D loss must not pose a catastrophic risk for the insurer all others are a requisite for an insurable risk

Dave is 42 years old and applying for a life insurance policy. In order to receive a lower premium, Dave indicates that he is 34 on the insurance application. Which of the following is the insurance company most likely to do when they determine Dave's right age? A) avoid the contract B) void the contract C) refund the premiums and deny any claim by Dave's beneficiary D) pay Dave's beneficiary a lesser face value that is based upon the premiums paid and Dave's correct age

D misstating age is a misrepresentation, but not a material misrepresentation and the insurance company will still pay the beneficiary

What type of hazard results from the indifference a person has to the potential loss because of the existence of insurance? A) peril B) physical hazard C) moral hazard D) morale hazard

D moral hazard= character flaw i.e. dishonesty morale hazard= indifference a person has toward loss because of insurance (leaving keys in car and car running)

Jeff is age 35, married with a son and daughter ages 3 and 5. Jeff earns $500,000 as a partner at a CPA firm. Jeff can purchase life insurance on all of the following except? A) wife B) son C) business partner D) his neighbor

D no insurable or economic ties to his neighbor

Where would you look in a clients homeowners insurance policy to determine if specific jewelry or personal property is covered? A) part A- dwellings B) Part B- other structures C) Part C- personal property D) endorsements

D part C is broad coverage at a minimum level, jewelry needs to be insured separately in an endorsement

All of the following statements regarding disability insurance are correct except? A) the longer the elimination period, the less expensive the policy B)An own occupation policy will provide disability benefits if the insured is unable to perform the duties of their own occupation C) any occupation policy is less expensive than an own occupation policy D) a residual benefit clause provides the insured with benefits that extend beyond the disability period

D residual benefit makes up the difference between wages before disability and wages after disability

Joe's daughter is 16 years old and he recently bought her a 1970s VW bug for $1,000. Which of the following risk management strategies should Joe use to manage the risk of property loss due to collision? A) risk avoidance B) risk reduction C) risk transfer D) risk retention

D risk retention since it is too expensive to transfer (insure) and car was inexpensive. Costs less to buy a new car.

Sally is 30 years old, a single mother of one child (age 9), making 25k per year as a secretary. Her net worth is zero. Sally has two identified objectives: 1. provide for her children in the event of her death 2. invest for retirement Which insurance policy should sally buy? A) whole life B) universal variable C) variable whole life D) term life

D sally can afford term life insurance, since she is young and premiums are less at younger age and her primary goal is to provide for her child

John, age 35, is married with two children ages 3 and 5. John has a need for life insurance throughout his lifetime. He has a significant income, but has saved very little. He has expressed concern over stock market volatility and he is very risk averse. Which of the following life insurance policies would provide John with a saving component, permanent protection and will match his risk tolerance. A) level term B) variable universal C) variable life D) whole life

D since he needs life insurance for his entire lifetime, level term is excluded very risk averse nixes variable policy

The tendency for individuals of higher-than-average risk to seek out or purchase insurance policies is? A) peril B) hazard C) law of large numbers D) adverse selection

D the underwriter attempts to manage adverse selection and weed out or manage those that need insurance

All of the following statements concerning universal life insurance are true except? A) the insurance has the flexibility to adjust premiums, face value and cash value of the policy B) insured has flexibility without the investment responsibility of the cash value C) cash value of the policy can be used to pay the premiums D) death benefit of a universal insurance policy is fixed

D universal policies have a death benefit that depends on investment performance and premiums paid, death benefit is NOT fixed

Family members are covered for the purposed of Part A (liability coverage) for a personal auto policy when operating all of the following except? A) your covered auto B) rented auto C) borrowed car D) replacement car after 31 days

D you must notify insurance company within first 30 days of purchasing a new car

All of the following statements are correct regarding a PLUP policy except? A) provides protection above and beyond the liability limits of your homeowners and PAP B) requires the insured to carry certain underlying minimum amounts of liability for homeowners and PAP C) the insurer provides legal defense to the insured D) only appropriate for individuals with a high net worth

D future earnings can be garnished, which a PLUP can protect against

Under a HO-3 policy, all perils are covered, with some exceptions. All of the following are perils that are excluded from HO-3 policy except? A) termite damage B) flood C) earthquake D) tornado

D termite damage happens slowly, due to negligence (excluded from H0-3 policy) flood and earthquake are one of the 6 perils, therefore not covered)

Homeowner insurance chart

H0-4 think 4 rent

Homeowners insurance chart extended

H0-6 does not cover coverage A (building would be covered by the apartment management)

Bill owns a home with a replacement cost of $400,000. He purchases $200,000 of property insurance with a coinsurance requirement of 80%. If Bill experiences a $50,000 loss, the insurance company will pay the following in dwelling coverage?

amount of insurance carried/coinsurance* amount of loss $200,000/(80%*$400,000)* $50,000= $31,250 subtract out deductible if there was one

Robin owns a life insurance police with a cash value of $50,000. Robin transfers the policy to the following persons with the associated tax consequences. 1. to an accounting firm in which she is a partner 2. to her ex-husband as part of a divorce settlement Are either taxed?

neither, they are both exceptions to transfer for value rule and she did not receive payment for the policy

Ed and Robert have two children. Their eldest son Tom is a full-time college student who lives at home and works part-time. Although he is a dependent for tax purposes, Ed does not claim him as a dependent. Can Tom signup for an HSA?

no, because Tom can still be claimed as a dependent, even though he is not specifically claimed