FIN 419 Final Exam
will
A legal declaration in which a person disposes of property to take effect upon his or her death.
turnover ratio
A ratio that measures the percentage of a fund's holdings that have changed or "been replaced" during a 12-month period of time. High X can result in higher income tax bills and higher fund expenses
copayment
Cost-sharing in the form of a flat collar amount you pay such as $20 to $30 per doctor visit
community property
any property that has been acquired by either spouse during the marriage, but not by gift, bequest, or inheritance; half of the community assets included in each spouse's estate
Short Term US Government Bond Funds
Invest in U.S. Treasury securities with maturities less than 3 years
IRA withdrawals
Lump sum -Taxed as ordinary income Installments based on life expectancy Withdrawals prior to age 59 ½ are subject to a 10% tax in addition to the ordinary income tax
Benefit limits
Maximum dollar amount or maximum number of days in the hospital
medicare part c
Medicare Advantage Plan
Medicare part d
Medicare prescription drug benefit
A letter of last instructions
Not legally enforceable (in some states) Provides heirs with important information, such as the details of your funeral arrangements, names of people to be notified of your death, the locations of your bank accounts, safe-deposit box, etc.
physician expense insurance
Pays for/Covers physicians' care fees including office visits, lab tests, and X-ray **does not include surgery
passive activity
a business or trade in which the investor does not materially participate, such as rental activity
estate planning
a definite plan for the administration and disposition of one's property during one's lifetime and at one's death
coordination of benefits
a group health insurance provision in a policy that benefits received from all sources are limited to 100% of all allowable medical expenses
trust
a legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries Takes care of or manages your property Used to protect assets from creditors or to manage property for young children, etc. All assets are taken out of your name and put in the name of the trust
legal costs of a will vary
a standard will costs 300-600
Home Health Care Agencies
agencies that provide skilled care in a person's home
codicil
an addition to a will
annuities
annual payments from the government
Exclusions and Limitations
conditions, situations, and services not covered by the insurance carrier
estate
consists of everything you own, including bank accounts, stocks, bonds, real estate, and personal property
coordination of benefits
coverage under more than one policy
dental expense insurance
covers exams, cleaning, x-rays, fillings, root canals, and oral surgery, etc,
stated dollar amount will
designated amount is passed to spouse; percentages are better due to investment risk
inflation risk
during periods of high inflation your investment return may not keep pace with inflation
Intestate
dying without a will
tenants in common
each individual is considered to own a proportionate share and each can choose who gets share at death
service benefits
entitlement to specific care rather than a fixed dollar amount per procedure
vision care insurance
exams, contact lenses, and glasses
June 2018, U.S. Department of Labor
expanded access to affordable health coverage options for small businesses and their employees through Association Health Plans (AHPs)
internal limits
fixed amount paid per day for a hospital room
money market funds
invest in CDs, government securities, and other safe investments and highly liquid investments
Long-term U.S. bond funds
invest in U.S. Treasury securities with maturities greater than 10 years
balanced funds
invest in both stocks and bonds, with the primary objectives of conserving principal, providing income, and long-term growth
large-cap funds
invest in companies with capitalization of $8 billion or more
midcap funds
invest in companies with total capitalization of $1 to $8 billion
international funds
invest in foreign stocks sold in securities markets throughout the world
short-term corporate bond funds
invest in investment-grade bond issues with maturities less than 3 years
municipal bond funds
invest in municipal bonds that provide investors tax-free interest income
funds of funds
invest in shares of other mutual funds
equity income funds
invest in stock of companies with a long history of paying dividends
Asset Allocation Funds
invest in various asset classes, such as stocks, and bonds, with precise amounts maintained within each type of asset
simple will
leaves everything to your spouse
traditional marital share
leaves one-half of the estate to a spouse and the other half to others, usually children. This may lower any tax burden on your estate and your spouse's
HIPPA (Health Insurance Portability and Accountability Act) of 1996
legislates new federal standards for health insurance portability, nondiscrimination in health insurance, and guaranteed renewability.
Spousal IRA
lets you contribute amounts on behalf of your nonworking spouse if you file a joint tax return
Medicare Part B
medical insurance -Voluntary -Doctor's services not covered by part A
global investment risk
must be evaluated just like domestic investments; way to diversify when the U.S. markets are in decline
growth funds
mutual funds that focus on stocks that have potential for above-average growth
capital gains
occur when shares are sold at a price greater than you paid
exemption trust will
passes to your spouse except for an amount equal to the exemption, which passes into a trust. The trust can provide a lifelong income
immediate annuities
payments begin right away
hospital indemnity policy
pays cash benefits when hospitalized
surgical expense insurance
pays part or all of the surgeon's fees for an operation
Joint and Survivor Annuity
pays until the last survivor you designate dies
trustor or grantor
person creating the trust
executor
person designated to execute the terms of a will
market risk
prices fluctuate because of systematic risk unsystematic risk and behaviors of investors
Straight Life Annuity
provides more income than any other type, but payments stop when you die
Tax Cuts and Jobs Act of 2017
requires large employers (more than 50 employees) to provide health insurance coverage to all employees
managed care
A health care system whose goals are to provide cost effective quality care. -Contracts with selected care providers -Fixed pre-paid monthly premium -Focus is on preventive care -Basic and supplemental services
ethical will
- New type of will that is a way to pass on emotional and spiritual wealth to your heirs - It is not a legally binding document - A way to pass on your values and beliefs - Share lessons you've learned in life - Address any regrets - Requires self-examination - Writer and recipients say the results are an invaluable legacy
A good health insurance plan should:
- Offer basic coverage for hospital and doctor bills - Cover at least 120 days hospital room and board - Provide at least $1,000,000 lifetime maximum for each family member - Pay at least 80% of out-of-hospital expenses after yearly deductible of $1,000 per person or $2,000 per family is met - Impose no unreasonable exclusions - Limit your out-of-pocket expenses to no more than $4,000 to $6,000 in a year
Hospital and medical service plans
- blue cross = hospital care - blue shield = surgical and medical services
Individual Health Insurance
-A policy tailored to your particular needs from the company of your choice
employer self-funded health plans
-Company collects premiums and pays medical benefits; may not have the assets to cover medical costs that exceed premiums
HMO
-Contracts with selected care providers -Fixed pre-paid monthly premium -Focus is on preventive care -Basic and supplemental services
Major Medical Expense Insurance
-Covers expenses for a serious injury or long-term illness; adds to basic plan -Has a deductible, coinsurance, and a stop-loss provision
other insurance policies
-Dread disease, trip accident, and cancer policies; focus on unrealistic fears; poor value
Medicare/Medicaid Anti-Waste, Fraud and Abuse Act of 1997
-Established tough new requirements for health care providers that wish to participate in the Medicare/Medicaid program.
New Health Care Accounts
-Health Savings Accounts -Health Reimbursement Accounts -Flex Spending Accounts
Comprehensive Major Medical Insurance
-Low deductible offered without a separate, basic plan -Covers hospital, surgical, medical, and other bills
Keogh plans
-are for self-employed people and their employees
medical insurance three choices
-basic, major medical, both basic and major medical
types of medical coverage
-hospital expense insurance -surgical expense insurance -physician expense insurance -major medical expense insurance -comprehensive major medical insurance -hospital indemnity policies -dental expense insurance -vision care insurance -other policies: Dread disease, trip accident, and cancer policies; focus on unrealistic fears; poor value
Private insurance companies
-individual policy -group policy sold to an employer
Medigap or MedSup insurance
-may pay what medicare doesn't
Medicaid
A federal and state assistance program that pays for health care services for people who cannot afford them. -low-income individuals and families -state administered with federal guidelines
Medicare
A federal program of health insurance for persons 65 years of age and older
prenuptial agreement
Agreement between spouses prior to marriage One or both spouses often waive a right to receive property under the other's will or under state law Consult an attorney
social media will
Allows you to decide how to handle your online content and identity Review privacy policies of each website State how you would like your profile to be handled Give the social media executor a document that lists all the websites where you have a profile with usernames and passwords State in your will that the online executor should have a copy of your death certificate (to take action on websites)
power of attorney
Also known as a health care proxy Legal document authorizing someone to act on your behalf Can be limited or gives a great deal of power If you are unable to make decisions regarding your health care, this authorizes someone to do it for you
major provisions in a health insurance policy
Eligibility, assigned benefits, internal limits, co-payments, benefit limits, service benefits, exclusions and limitations, coordination of benefits, cancellation and termination
Education IRA
Give $2,000 a year to each child Accounts grow tax free and invested any way you choose
major responsibilities of an executor
Prepare an inventory of assets Collect any money due and pay off any debts Prepare and file all income and estate tax returns Liquidate and reinvest other assets if necessary to pay claims Distribute assets, based on the instructions in the will Make a final accounting to beneficiaries and to the probate court
living will
Provides for your wishes if you become physically or mentally disabled Not a substitute for a traditional will Discuss your living will with those close to you and your family doctor Sign and date it before two witnesses Give copies to those close to you A health care proxy (durable power of attorney) A letter of last instruction (after-death wishes)
benefits of establishing trusts
Reduce or provide payment of estate taxes Avoid probate and transfer your assets immediately to your beneficiaries Free you from managing assets Provide income for a surviving spouse or other beneficiaries Ensures property serves desired purpose after your death
patient protection and affordable care act of 2010
Required all people to sign up for insurance coverage Patients could not be denied coverage because of a pre-existing conditions Many other regulations put into place dealing with insurance coverage. •Offers tax credits for small businesses to make coverage more affordable •Prohibits denying coverage to children with pre-existing conditions •Bans insurance companies from dropping sick people •Eliminates copayment for preventive services •Allows children up to age 26 to remain on parent's plan •Prohibits lifetime caps on coverage; restricts use of annual limits •Provides consumers with access to appeal process •Increases funds for Community Health Centers •Provides path to increase number of heath care providers •Premium increases must be justified •Requires most Americans to purchase health care •Creates insurance exchanges to purchase coverage •Expands Medicaid program •Employers with 20 or more employees must provide insurance
joint tenants with right of survivorship
The property will automatically pass to your spouse upon your death with no estate tax paid at the first death Estate tax is paid when surviving spouse dies
cancellation and termination
These are circumstances under which the insurer can terminate or cancel your policy.
Rollover IRA
Traditional IRA that accepts rollovers of your taxable distribution from a retirement plan or other IRA
statutory will
Type of formal will on a pre-printed form. Has rigid provisions, may not meet current laws, and may be invalid if you change provisions.
formal will
Usually prepared with attorney's assistance You must sign and have two witnesses, neither of whom can be beneficiaries
Holographic Will
Will that you write, date and sign, entirely in your handwriting May not be recognized in some states
Hospital Expense Insurance
insurance that covers Hospital room and board and other charges
socially responsible funds
avoid investing in companies that produce harmful products
Business Failure Risk
bad management or products affect stocks, municipal or corporate bonds, and mutual funds that invest in stock or bonds
World Bond Funds
buy bonds of foreign companies and governments
high-yield (junk) bonds
buy corporate bonds that are higher risk and higher yield
Long-term corporate bond funds
buy investment-grade corporate bond issues with maturities greater than 10 years
intermediate corporate bond funds
buy investment-grade corporate debt that matures between 3 and 10 years
sector funds
buy stock in companies in a particular industry such as biotechnology
regional funds
buy stock in companies in a specific region of the world
global stock funds
buy stock in companies in the US and other countries
small-cap funds
buy stock in lesser-known companies with a capitalization of less than $1 billion
Aggressive Growth Funds
buy stocks in small, fast-growing companies
index funds
buy stocks that mirror an index
Intermediate U.S. Bond Funds
buy treasury securities with maturities of 3-10 years
COBRA
from slides: requires many employers to offer employees and dependents the option to continue their group coverage for a set period of time following a divorce; does not cover federal government and religious institution employees. law to provide terminated employees or those who lose insurance coverage because of reduced work to be able to buy group insurance for themselves and their families for a limited amount of time.
SEP IRA
funded by employers; simplest retirement plan for self-employed
Preferred Provider Organization (PPO)
group of healthcare providers that provide services to a specific group, often at a reduced rate -Several providers to choose from -Costs more than a HMO -Specified services at predetermined fees to X members -If you go to a non X provider, you pay more Includes EPO and POS plans
Life With Period Certain Option
guarantees a specific number of payments
Medicare part A
hospital insurance -•Inpatient hospital care, inpatient skilled nursing facility care, home health care, hospice care
Deferred Annuities
income payments begin at some future date Contributions, and the interest they earn, are tax-deferred until you begin drawing the money out
components of the risk factor
inflation risk interest rate risk business failure risk market risk global investment risk
lifecycle funds
initially invest in more risk-oriented securities and become increasingly conservative and income-oriented as a specified retirement date approaches
assigned benefits
insurance pays your doctor or hospital directly
income dividends
the earnings a fund pays to shareholders from its dividend and interest income
probate
the legal procedure of proving a valid or invalid will
capital gain distributions
the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio -taxed when received
passive loss
the total amount of losses from a passive activity minus the total income from the passive activity
interest rate risk
value of of an investment (such as government or corporate bonds) with a fixed rate of return decreases (increases) when overall interest rates in the economy increases (decreases).
eligibility
varies with age, marital status, and dependency
tenancy by the entirety
when one spouse dies, the other gets the property automatically
irrevocable trust
you cannot change the terms or end the trust For tax purposes the trust becomes a separate entity If a large estate, used to reduce estate taxes and avoids probate
revocable trust
you retain the right to end the trust or change its terms during your lifetime May avoid the lengthy probate process Does not provide shelter from federal or state estate taxes
selecting a guardian
‒If you have children, you need a will to name their guardian and/or trustee ‒A guardian assumes the responsibility for providing the children with personal care and managing the estate for them ‒Trustee will manage property for benefit of children ‒Be sure the person would be willing to raise them and that their philosophy matches yours
what is being done about high costs of health care
•Careful review of fees and charges •Establish incentives for preventive care and services provided out of the hospital where medically acceptable •Involve community in balancing health care needs and health care resources •Encourage prepaid group practices •Support community health education programs so people take better care of themselves •Physicians encourage patients to pay cash for routine care
what can you do to reduce personal health care costs
•Consider participating in a flexible spending account. •Consider a high-deductible health plan. •Ask for less expensive generic drugs. •Use a mail-order or online pharmacy for long term drugs. •Review free or low-cost coverage for uninsured children through state. •Review state plans for prescription drug assistance. •Follow up with doctor by phone if allowed. •Investigate non-urgent procedures recommended by doctor. •Review billing statements for errors. •Appeal unfair decisions by your health plan. •Practice preventive care. •Stay well: -Eat a balanced diet and keep your weight under control. -Avoid smoking and don't drink to excess. -Get sufficient rest, relaxation, and exercise. -Drive carefully and watch out for accident and fire hazards in the home. -Maintain a healthy lifestyle. -Get recommended health screening and manage chronic conditions.
36 months
•Coverage under a former spouse's medical plan can be continued for ______ and premiums are paid entirely by the individual.
sources of disability income
•Employer -Group disability plan may be short or long term. -Most insurers limit benefits from all sources to no more than 70 to 80% of your take-home pay •Social Security -Covers total disability that lasts more than twelve months and you must be unable to do any work •Worker's Compensation -Applies if your accident or illness occurred at your place of work or resulted from your type of employment.
Group Health
•Group plans comprise about 90% of all health insurance. •Most group plans are employer sponsored; employer pays part or most of the cost
health insurance trade-offs
•Reimbursement versus indemnity •Internal limits versus aggregate limits •Deductibles and coinsurance •Out-of-pocket limit •Benefits based on reasonable and customary charges
Individual Shared Responsibility Provision
•Requires you and each member of your family to: -Have minimum essential health coverage every month, or -Have an exemption from the responsibility to have minimum essential coverage, or -Make a shared responsibility payment when you file your federal income tax return.
definition of disability
•Some policies define it simply as the inability to do your regular work. •Good X plans pay when you are unable to work at your regular job. •Poor X plans pay only when you are unable to work at any job.
Health Care Costs
•The United States has the highest per capita medical expenditures of any country in the world. -The average per capita cost for health care was estimated to be $11,670 in 2019. •Health care costs are estimated at $3.9 trillion (19.7% of GDP) in 2019. -Expected to grow to $5.7 trillion by 2026 •Yet about 32 million people have no health insurance. •High administrative costs -11% of health care dollar versus 1% in Canada
Why does health care cost so much?
•Use of sophisticated, expensive technologies •Duplication of tests and technologies •Increases in the variety and frequency of treatments •Increasing number and longevity of elderly people •Regulations that result in cost shifting rather than cost reduction •Increasing number of accidents and crimes that require emergency medical services •Limited competition and restrictive work rules in the health care delivery system •Labor intensiveness and rapid average earnings growth for health care professionals •Using more expensive medical care than necessary •Malpractice insurance and fraud •Built-in inflation in health care delivery system •Aging baby boomers
disability insurance trade offs
•Waiting or elimination period •Duration of benefits •Amount of benefits •Accident and sickness coverage •Guaranteed renewability
disability income insurance
•protects your most valuable asset: your ability to earn income. •Provides regular cash income lost as the result of an accident or illness.