ACE 240 final

401k?

?

Affordable care act

?

Medicaid???

?

Medicare part A/B ???

?

pension?

?

Two primary risks of longevity and finances?

Dying too soon and living too long

Intestate

Dying without a will

Least expensive life insurance?

Term

True or false, medicare part D covers prescription drugs

True

Other purposes of life insurance

protection from creditors (death benefit directly to chosen beneficiaries) Tax benefit (death benefit is usually tax free and not subject to estate tax) vehicle for savings (some type of life insurance policies)

real property vs personal property

real-- land and anything attached to it such as houses, garages, etc.. personal-- tangible moveable property, such as all your household stuff

Risk Transfer

shifting risk from one party to another

Trusts

a legal relationship that facilitates the transfer of property and the income from that property to another party a trust that is specifically designed to receive retirement account balances allows the account to continue growing tax deferred, for as long as possible also protects the inherited balance from the beneficiary's creditors and allows for distribution in accordance with the deceased account holder's wishes

Advance directive

a medical guideline that pertains to treatment preferences including: -durable power of attorney for healthcare (agent for finances while incapacitated) -health care proxy (legal document that allows another person to make health decisions for you if you can't) -living will (instructs health care providers of what to do if you become terminally ill with no hope of survival and can't express your wishes)

Will

a written, legal declaration of a person's wishes concerning the disposition of their property upon death

risk acceptance

accepting risk of loss

Limitations on payments

actual cash value- what property is worth today (depreciated value) replacement cost -- amount to repair at today's price policy limits-- placed on covered property and depend on amount of home coverage internal limits-- apply to specific items such as jewelry, watercraft, or securities

What is a major difference between a traditional IRA and a Roth IRA

earnings in a Roth IRA are completely tax-free while earnings in Traditional IRA are tax deferred

the estate tax

estates are taxed at both federal and state levels estate tax rates are higher than income tax rates

needs analysis method

estimate needs and examine available resources family total economic needs- financial resources available after death

Peril

fire, lightening, weather, etc...

risk reduction

loss prevention-- adequate sleep, healthy eating loss control-- regular checks ups increase

Home insurance section 1 perils

loss to property conditions under which it will be covered

Group life insurance

usually term insurance offered through employers premiums usually lower than individual policy purchased

self control devices

-illiquid asset -direct deposits . in 401k account . tax return -saving disciplines

Common financial mistakes

-low levels of stock market participation -bad diversification -individual's tendencies to sell assets that have appreciated while holding on to assets whose value has declined even if future return prospects are the same -holding taxable assets in taxable accounts and non-taxable assets in non-taxable accounts

To minimize post-retirement tax

-move to lower taxed state -reducing your post-retirement expenses lowers your tax bracket -pay off mortgage before retirement -diversify your after retirement income . social security benefit is taxed based on your combined income .in illinois, pension is not subject to state income tax -Roth IRA or Roth 401k won't be taxed if your withdrawals are qualified -dividend income and long-term capital gains are taxed at a lower rate -withdrawals from your traditional IRA and 401k are fully taxable

Collision coverage

-people -vehicles -non-moving objects pays no matter who is at fault pays actual cash value minus deductible required for financed cars

Term Life insurance

-simplest type -specific amount of insurance for a set period -provides specific death benefit, no cash value -benefit paid if insured dies during time period Advantages: -economical way for young families to purchase large amounts of life insurance -provides for needs that disappear over time, such as a mortgage, business debt or the cost of raising children through college Disadvantage: -premiums become more costly as you get older -doesn't build cash value Renewability (optional): allows you renewal for another term without showing medical review (premium usually increases) convertibility (optional): option to convert from term to whole without medical review (coverage amount and premium may change)

Common retirement planning mistakes

-starting too late -putting away too little -investing too conservatively

Disposition effect

investors tend to sell winners too soon and hold losers too long

What isn't a benefit of Life Insurance?

A. the death benefit is part of the probate property B. Protection from creditors C. Tax benefits D. Vehicle savings Answer: A

Home insurance coverages

-Direct losses-- loss of property (rebuilding home that burned down) -Indirect losses-- ( loss as a result of loss of use to damaged property--- rental income) -Additional expenses-- direct and indirect (cleanup expenses)

uninsured motorist criteria

1. another driver at fault 2. other motorist uninsured 3. damages were incurred

Risk management process

1. identify sources of risk 2. estimate risk and potential losses 4. implement the risk management program 5. evaluate and adjust program

Requirements of a valid will

1. mental capacity 2. freedom of choice 3. proper execution

Four easy ways to grow savings

1. save on a schedule 2. save every payday 3. save when you pay bills 4. save on the fly

Insurance companies two strategies

1. structure pricing and benefits so that precautionary behavior is encouraged 2. charge rates in proportion to level of risk

how to die right

1. write a will 2. consider life insurance 3. establish critical end of life documents 4. avoid probate 5. set up trusts 6. divide up your personal stuff and leave written bequests 7. plan your memorial/funeral 8. choose burial/cremation and express your wishes

Illinois minimum vehicle liability amounts

20,40,15 always carry card on you

Which of the following is not one of the traditional three legs of the three-legged stool of retirement planning?

A. Family support B. Individual savings C. employer plans D. Government plans Answer: A

At which level are estates taxed?

A. Federal B. State C. Federal and state D. none of the above Answer: C

Benefits of whole life insurance?

A. Financial protection for dependents B. protection from creditors for owner of plan C. Tax benefits D. Vehicle for savings E. All the above Answer: E

Which is not a characteristic of a HMO?

A. You must designate a primary care physician B. less expensive premium that PPO C. primary care physician must refer you to a specialist D. higher deductible than PPO Answer: D, HMO doesn't necessarily have higher deductible than PPO

Which of the following factors is a liability risk affecting the cost of home insurance

A. construction material B. Crime rate C. Weather D. Low credit score Answer: D, Construction material, crime rate, and weather are all property risk

Life insurance and retirement accounts

Assets like life insurance, real estate, vehicles, and non-retirement investment accounts are not counted as income when inherited

Primary Purpose of Life Insurance

Financial protection for dependents

Retirement life style

Less income needs pre-retirement more income needs post-retirement

Home Insurance section 2 perils

Liability

Which of the following provides insurance for hit and run and accidents by uninsured motorists

Part A Part B Part C Part D Answer: Part C

Which of the following is incorrectly matched in regards to auto insurance

Part A-- liability coverage Part B-- medical payment coverage Part C-- uninsured motorist coverage Part D-- Damage to public property coverage Answer: D, should be coverage for damage to your vehicle

Social Security

The old are, survivors, and disability insurance (OASDI) pay as you go, current workers pay social security taxes and money flows out as monthly income to current beneficiaries SS is primarily funded through dedicated payroll taxes called Federal Insurance contributions act (FICA) tax Depends on when you start receiving them (can either increase or decrease benefit)

Retirement accounts

are income in respect of a decedent, and any amounts withdrawn from non-roth accounts are subject to income tax at the beneficiary's ordinary income tax rate retirement plan assets can be subject to estate tax

Risk avoidance

avoiding an act that would create risk

Beneficiary Designations

beneficiary designation takes priority over your will

Cobra Insurance

cobra insurance will cover the spouse and children provided they were in the same insurance plan you are responsible for paying 102% of the group insurance cost for a cobra insurance when you lose your job, it is more expensive to purchase individual health insurance than the group insurance with your previous employer under cobra

Traditional IRA (individual savings)

contributions can be tax deductible earnings grow tax deferred you pay income tax on distributions

Roth IRA (individual savings)

contributions made with after tax dollars earnings grow tax free you do not pay income tax on distributions

Renter's Insurance

covers contents of house, apartment, or cooperative unit, but not the structure itself

Home insurance people covered

covers named persons and their family members who reside in household

Large loss principle

insure the risks that you cannot afford and retain the risks that you can reasonably afford -insurance limit should cover the highest possible loss -choose a higher deductible to make insurance more affordable

Multiple of earnings method

multiply earnings by an arbitrary number -simple -doesn't take family obligations into account -doesn't take other resources available into account

Auto Insured person

named insured family members any person using covered autos any person or organization responsible for insured's actions

projection bias

people over predict the degree to which their future tastes will resemble their current tastes

Status quo bias

people prefer current state of affairs. 401k two plans example -employees tend to use default contribution rate and investment fund

Endowment effect

people tend to value an object they have more than an object they don't have also people tend to avoid losses rather than pursue gains

Whole life insurance

permanent insurance -provides specific death benefit + savings/investment feature -nonforfeiture right: right to cash value when canceled prior to death -Cash value: the accumulated refundable value of an insurance policy resulting from the investment earnings on paid-in insurance premiums Advantages: -savings vehicle -borrow against cash value -premiums remain constant -cash value accumulates tax free until redeemed Disadvantages: -less death protection for young people -low return on savings -tax penalties possible on early withdrawal -outstanding loan subtracted from face value of policy upon death

speculative vs pure risk

speculative-- gain or loss pure-- only loss

IRA

standard beneficiary form only asks "who" IRA asset will can specify "how" withdrawals can be stretched out over the life expectancy of the beneficiary not eligible for bankruptcy protections

probate

the legal process by which court supervises the disposition of a person's estate

If you have a will

your loved ones must still go through the probate process to get what you left them this can be expensive and take a long time

non probate estate

your non-probate property is transferred at your death before your estate goes through probate court contracts you set before death -beneficiary in life insurance and retirement plans -assets owned by joint ownership with rights of survivorship -payable at death clauses in bank accounts trusts

if you die without a will

your possessions become part of your estate for the legal system to sort out for your heirs, this means more time wasted, more money down the tubes and more aggravation

probate estate

your wishes as outlined in your will if you have no will, the intestate succession laws in your state