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
