RMI 270 Test 3 Avila
IRAs: Limits (I dont think he'll ask this but whatever)
- $6,000 per worker under 50 - $7,000 per worker over 50
Types of Life insurance: Whole life Insurance
- CASH VALUE POLICY that provides lifetime protection (savings and protection element) - ORDINARY WHOLE LIFE ENDS AT AGE 100, pays if you die before 100 or if you life to 100 - $500 TO $1,000 A YEAR FOR $100,000 FACE AMOUNT IN YOUR 20's - MORE EXPENSIVE THAN TERM LIFE SINCE IT HAS CASH VALUE ELEMENT
Principal Medical Expenses
- Hospital Expense (room and board, ambulance, tests etc) - surgical expense - outpatient services - physicians expense - preventative services - maternity benefit (hospital, surgical, and preventative are the big ones)
Health insurance: Providers
- Insurance companies - Blue cross/Blue shield - self insured plans - HMOs (health maintenance organization) - PPOs (preferred provider organization) in and out of network - POS (point of service plan) where you get service determines how much you have to pay and how much insurance pays (I think) (probably not going to be on the test)
Types of Life insurance: Uses for Whole life insurance
- Lifetime protection needed - additional savings needed - cost factors: mortality, expenses, and interest (whatever that means) Limitations: - insured may sill be underinsured because of the cost - received favorable tax treatment on the cash value build up (i assume this is not a limitation)
Types of Life insurance: Other Types of life insurance
- Second to die: paid upon the death of the second person, used in estate planning - industrial (debt): face amounts generally from 5,000-25,000 - group (including credit): coverage for a group with a single contract, sold through work - Credit Life: pays off an installment or a loan agreement in the event of death, expensive term insurance
Settlement Options (death benefit not taxable): fixed amount
- a fixed amount is paid each month
Annuity Settlement Options: Life annuity with installment or cash
- a repayment of principal is made, pays third highest out of the options
Optional Provisions: Accidental death benefit ("double indemnity")
- additional amount of insurance is paid if you die by a qualified accident
Annuities and IRA accounts
- allow for the tax deferred accumulation of money to be used during retirement - liquidation of a sum on a fixed schedule or for the duration of a designated life or lives (annuitize the sum) - have 500,000, withdraw 250,000. buy an annuity with other 250,000 to pay for the rest of your life or designated lives
Provisions: Grace Period
- allows a certain period of time to pay an overdue premium. *the premium is deducted from the face amount if death occurs during the grace period*
Equity Indexed Annuity
- allows the annuity owner to participate in the growth of the stock market and provides downside protection against the loss of principal (have less risk) - ex. 60% of S&P 500 return or 2% guaranteed - if up 20%, you get 12% - if down 20%, you get 2%
Optional Provisions: guaranteed purchase (insurability)
- allows you to purchase additional amounts of insurance at specified ages without evidence of insurability, ex. ages 25, 28, 31, 34, 37, 40, 43
Optional Provisions: Cost of living Rider
- allows you to purchase one year term insurance equal to the % change in the Consumer Price Index (CPI) with no evidence of insurability
Dividend Options (dividend not taxable): Reduce Premium
- also called vanishing/disappearing premium when dividends are larger than the premium - use dividend to reduce premium
IRAs: Rollover IRA
- assets from 401 (k) or 403 (b) plan or other retirement plan can be put into an IRA
Annuity Settlement Options: joint and survivor annuity
- based on 2 or more lives and paid until death of the last annuitant
Major Medical
- broad coverage, some exclusions, internal limitations - cost sharing - coinsurance 80/20 or 90/10 (60/40 or 50/50 for out of network) - copayments: fixed amount the insured pays for certain services
Method of Purchase: Single premium
- buy right into an annuity
disability income insurance: characteristics
- can be long-term, short-term, individual, or group
Health and disability insurance provisions: Guaranteed renewable
- can change the rates for your group, but renewal is guaranteed
Health Savings Account (HSA)
- can contribute to the HSA if covered by a high deductible health plan
Health and disability insurance provisions: noncancellable
- cannot change the rates, rates are guaranteed
disability income insurance: definition of disability
- cannot perform your own occupation for 2 years
Nonforfeiture Options: reduced paid up whole life
- cash value is applied as a net single premium to purchase a reduced paid up policy, no more premium needed
IRAs: Roth IRA
- contributions are not tax deductible, no tax on distributions
Dividend Options (dividend not taxable): paid up additions
- dividend is used to purchase a small amount of paid up whole life insurance
Dividend Options (dividend not taxable): cash
- dividend paid to the insured - basically a refund of overpaid premiums
Types of Life insurance: nonparticipating contracts
- do not pay dividends
disability income insurance: peril is more likely than premature death when?
- during your working years 1/3 chance of becoming disabled 1/5 chance of dying before 65
Preexisting conditions
- failure to cover conditions that you already have is prohibited
Types of Life insurance: Variable Life insurance
- fixed premium policy - variable allows investment into stock market mutual finds - death benefit and cash value vary according to investment experience of a separate account maintained by the insurer - cash value not guaranteed
fixed-rate annuity
- fixed, periodic payments based on a fixed interest rate
Types of Life insurance: Universal Life insurance
- flexible, can change the face amount - cash value and protection element - pays a competitive interest rate on the savings element
Annuity Settlement Options: Life annuity with period certain
- guaranteed payments over a specific period of time, pays the second highest amount
Provisions: Suicide Clause
- if the insured commits suicide within 2 years after the policy has been issued, the face amount is not paid, there is only a refund of premiums - to reduce adverse selection against the insurer
Provisions: Misstatement of age or sex
- if the insured misstates their age or sex, the amount payable is the amount that the premiums paid would have purchased at the correct age or sex
Types of Life insurance: uses for term life
- income is limited - temporary need - guaranteed future insurability Limitations: - premiums increase with age, reach prohibitive levels
Method of Purchase: Flexible premium
- installment purchase of an annuity
Provisions: Incontestable clause
- insurer cannot contest the policy after it has been in force for 2 years
Settlement Options (death benefit not taxable): interest
- interest is paid on the death benefit, death benefit remains with the insurer until a later date
Optional Provisions: Life Settlement
- life settlement companies purchase life insurance policies from individuals at a higher price than if they surrender their policies for cash value
Major Medical: stop loss limit
- limits how much out of pocket an insured pays, after you reach the limit, insurance must pay 100% of the cost
Schedule
- lists the maximum amount for each surgical procedure (i think that the insurance will pay)
disability income insurance: waiting period
- longer you wait, cheaper the premium, acts like a deductible - pay out of pocket before you get benefits
Flexible Spending Account (FSA)
- lose it if you don't use it - use for childcare, dental, vision expenses and others
IRAs: Traditional
- may allow workers to take a tax deduction for part or all of their contributions. Distributions are taxed as ordinary income. - can convert to a Roth IRA
Policy Loans
- no fixed repayment required, low interest rates - if you die with a loan on the policy, loan is deducted from face value
long-term care insurance
- nursing home coverage - home health care
Automatic Premium Loans
- overdue premiums are automatically borrowed from the cash value after the grace period expires - missed payment and lapse protection - not for term life insurance policies
Annuity Settlement Options: Life annuity
- paid until the death of the annuitant (person receiving the money) Pays the most out of other options
Types of Life insurance: Participating Contracts
- pay dividends that could be used to pay premiums - dividends may not be guaranteed (the outline is ambiguous)
Settlement Options (death benefit not taxable): fixed period
- payments are made for a fixed period of time
Variable Annuity
- payments vary according to investment returns (investments in mutual funds, you're taking risk)
Payment of Benefits: Deferred Annuity
- pays income at some future date
Payment of Benefits: Immediate Annuity
- pays income immediately after purchase at regular intervals
Provisions: Reinstatement Clause
- permits the owner to reinstate a lapsed policy - policy must not have been surrendered for its cash value - must be reinstated within a period of time (typically 3-5 years - need evidence of insurability (I think) - all overdue premiums must be paid from their respective due dates - any policy loan must be repaid or reinstated with interest from the date of the overdue premium
Provisions: Entire Contract Clause
- policy and attached application constitute the entire contract
Provisions: Ownership Clause
- policy owner possesses all contractual rights
Types of Life insurance: Term Life Insurance
- provides temporary protection - can be renewable without evidence of insurability - premiums increase is gradual in early years, but rises sharply in later years - can be a level premium for a number of years: 5, *10*, 15, *20*, 25, *30* - NO CASH VALUE - CAN BE CONVERTIBLE TO A PERMANENT POLICY
disability income insurance: income
- replaces income, but not 100% of it, usually 2/3 of salary
Crisis in healthcare/health insurance
- rising costs - too many uninsured - quality - lack of efficiency
Types of Life insurance: Variable universal life insurance
- saving and protection - flexible, can change face amount - cash value is invested in stocks, bonds, or money market mutual funds - insured takes the investment risk, no guaranteed cash value
Settlement Options (death benefit not taxable): Life income
- straight life income: paid until the death of the beneficiary - life income with a period certain: paid until the death of the beneficiary or until a guaranteed number of payments have been paid - life income with refund: if the beneficiary dies before receiving the full face amount, a refund or installment payment is made and paid until the death of the second person - joint and survivor income: paid until the death of the second person
Nonforfeiture Options: cash (surrender)
- surrender policy for its cash value
Nonforfeiture Options: extended term insurance
- the cash value is used to purchase term life insurance for the SAME FACE VALUE as the original policy for a certain number of years and days
Annuities and IRA accounts: Purpose
- to provide a lifetime income to an individual or couple that cannot be outlived
Optional Provisions: Accelerated Death Benefits
- viatical settlement companies buy life insurance policies from those who are dying - life insurance companies pay a portion of the death benefit prior to death if the insured is diagnosed with a terminal illness
UCR- Usual customary and reasonable
- what healthcare procedures make sense for the geographical area
Optional Provisions: Disability waiver of premium (conditions)
- your premium is waived for a qualified disability - like disability insurance that would pay for your premiums
Dividend Options (dividend not taxable): accumulation at interest
-Kept with the insurer and earns interest
Characteristics of life insurance: Primary beneficiary
1st person to receive benefits
who needs life insurance: two income earners
Depends/great need -double income no kids have small need
Who needs life insurance: single parent families
Great need - no other parent to pay for children
who needs life insurance: Blended families
Great need - take care of both spouses children
Types of Life insurance: Option A
Level death Benefit or decreasing net amount at risk
Who Needs Life Insurace: Singles
Minimal Need - no dependents
Types of Life insurance: Limited Pay Whole Life
Whole life insurance put you pay it off over a certain number of years then stop paying premiums - more expensive because you are paying the same amount in a shorter period of time
who is the beneficiary in a Key Person Insurance policy?
a Business
Beneficiary Designations: Class
a group/type of people ex. children
Business uses of life and health insurance: for employees
can buy life and health insurance for pensions and employee benefits
Characteristics of life insurance: revocable
can change the beneficiary without their consent
Characteristics of life insurance: irrevocable
cannot change the beneficiary without their consent
who needs life insurance: one breadwinner families
great need - no other breadwinner to take care of family expenses
who needs life insurance: sandwiched families
great need - take care of children and their grandparents
Beneficiary Designations: Specific
has names people
Characteristics of life insurance: a unique function of life insurance is
income replacement
Types of Life insurance: Option B - _/ --
increasing death benefit or level net amount at risk / /
Business uses of life and health insurance: business continuation plans
life insurance issued to fund buy-sell agreements for the business -can buy partner out of the business when they die
Characteristics of life insurance: cash payment contract
not a contract of indemnity which would change the amount you receive by the amount that you are worth, instead you agree to a single amount at the beginning of the policy
Level Premium Term
pay a level premium over the lifetime of the policy
Human Life Value (HLV)
present value of the family's share of the deceased breadwinner's future earnings
Yearly renewable term insurance
provides protection for one year and renewable each year after (premiums will rise)
Characteristics of life insurance: contingent beneficiary
receives the proceeds if the primary beneficiary predeceases the insured
Blackout Period
the period from the time that Social Security survivor benefits terminate to the time the benefits are resumed (social security)