Insurance Flashcards

Question

What property is excluded under Personal Property Coverage?

Answer 1

* Animals, Birds, or Fish * Motorized Land Vehicles and Aircraft * Property of roomers, boarders or other tenants * Property contained in an apartment regularly rented or held of rental to others by the insured (unless specifically endorsed)

Answer 2

The policy lists perils covered: * Windstorm * Hail * Aircraft * Riot * Vandalism * Vehicles * Explosion * Smoke * Fire * Lightning * Theft **Study Hint**: Remember: WHARVVES/FLT

Answer 3

* Rupture of a System * Artificially Generated Electricity * Falling Objects * Freezing of Plumbing **Study Hint**: Remember Basic plus RAFF

Answer 4

"OPENN WIF" * Ordinance/Law * Power Failure * Earthquake * Nuclear Hazard * Neglect * War * Intentional Loss * Flood **Note**: Sinkhole is a covered peril for the exam

Answer 5

* Replacement Cost x Coinsurance Percentage = Insurance Required * Insurance Carried ÷ Insurance Required x Loss - Deductible = Amount Paid by Insurance *Usually Commercial 90%, Residential 80%

Answer 6

* Be owned by an individual or by a husband and wife living in the same household * Be private passenger auto* * Not be used as public or livery conveyance * Not be rented to others

Answer 7

* **Part A** - Liability to third parties * **Part B** - Medical payments * **Part C** - Uninsured/Underinsured motorists * **Part D** - Damage to the covered auto

Answer 8

* Any vehicle shown on the declarations page * Any of the following which you acquire during the policy period: * Private Passenger Auto * Pickup Truck * Panel Truck or Van NO coverage for any of these used in a business (need a commercial policy for that) * Any trailer you own listed on the declarations page * Any auto or trailer you do not own while used as a temporary substitute for any vehicle decribed herein which is out of normal use because of a breakdown, repair, servicing, loss or destruction

Answer 9

* The named insured and any family member who suffers bodily injury caused by accident while occupying covered vehicle * The named insured and family members who if, while a pedestrian, are struck by any motor vehicle designed for use on public roads or by a trailer * Other persons while an occupant of the insured's auto (passengers)

Answer 10

This agreement promises to pay the amount an injured insured could have collected from the uninsured dirver if such driver had carried auto liability insurance. The term "covered person" as used under the uninsured motorist coverage of the PAP includes the following: * The named insured and any family member * Any other person occupying the insured's covered auto * Any person, for damages that person is entitled to recover because of injury to a person described above **Note**: UM is liability protection, NOT medical payments

Answer 11

* Glass Breakage Loss caused by: * Falling Objects * Fire * Theft * Explosion * Earthquake * Windstorm * Hail * Water * Flood * Riot or Civil Commotion * Contact with Birds or Animals

Answer 12

* Nearly always a correct answer since it is smart coverage * Provides liability coverage (BI/PD) for catastrophic claims * Requires policy owner to carry certain underlying coverage of specified amounts * Professional acts are specifically EXCLUDED!

Answer 13

* **Malpractice** - Bodily Injury (doctors, dentists) * **Errors and Omissions (E&O)** - Monetary damages (financial advisors, lawyers, accountants, insurance agents)

Answer 14

* Unlimited Medical Expenses * Disability Income (TAX FREE) * Death Benefits * Rehabilitation (Medical and Vocational) * Absolute Liability

Answer 15

* Routine foot care, glasses, hearing aids, and dental * Emergency Care outside the US (some exceptions for Canada, Mexico and Caribbean)

Answer 16

**Benefits are Limited**: Pays all of the first 20 days of SKILLED care and everything over $200/day for the next 80 days of SKILLED care (100 day max) **The Limited Benefit is Subject to Substantial Restrictions**: Pays for SKILLED care only: * Admission to a nursing home must follow within 20 days of the hospital stay of three days or more * The patient's condition must be expected to improve

Answer 17

**HMO:** * Provider paid monthly fee regardless of services rendered (Capitation) * Out of Network care not covered at all **PPO:** * Provider paid for actual services rendered * Out of network partially covered, usually 70%

Answer 18

* Must have 20 Full/Part-Time Employees. * The option to buy Continuation. **Coverage must be offered to**: (Qualifying Event?) * Terminated employees/dependents up to 18 mo. * Voluntary or involuntary termination, change from FT to PT * Spouses and other dependents up to 36 mo. * Employee's death, divorce, legal separation, or eligibility for Medicare Children of Employees up to 36 mo. * Loss of dependent status (marriage) * Reaching dependency age limit specified by plan

Answer 19

* Used in conjunction with High Deductible Health Plan (HDHP) * Distributions are tax free if used for health care * Contributions not spent are carried forward and portable * Unused assets become property of named bene on death * Distributions for non-medical are ordinary income plus 20% penalty if under 65

Answer 20

**Own Occupation** - Best definition for the insured * Modified any occupation **Split Definition** - Own then modified **Any Occupation** (Social Security definition) * Loss of Income

Answer 21

* **Noncancellable "Noncan":** Continuous term policy guaranteeing the insured's right to maintain the policy *at the stated premium* * **Guaranteed Renewable:** Continuous right to maintain the policy, but the insurer *may increase the premium* by class of insureds

Answer 22

**Taxation of Premiums and Benefits:** **The individual owns the contract and pays the premium:** * Premiums are not deductible * Benefits are tax free to the employee **The employee owns the contract and the employer pays the entire premium under a bonus arrangement like section 162 disability insurance:** * Premiums are deductible by the employer as a bonus * Benefits are tax free to the employee. **The employee owns the contract and the employer pays the entire premium under a salary continuation plan (group plan).** * Premiums are deductible by the employer * Benefits are taxable to the employee

Answer 23

* Insurance company controls the investment return * Assets part of the general account * Whole Life (CFP Board Loves Whole Life) * Universal Life - Can adjust Premium & DB

Answer 24

* Client controls the investment return * Assets part of a separate account * Variable Life * Variable Universal Life - Can adjust Premium & DB

Answer 25

* Cash * Reduce Premium * Accumulate with Interest * Paid up Additions * One-year Term/5th Dividend **Remember**: CRAPO

Answer 26

* Cash * Extended Term * Paid Up Reduced Amount

Answer 27

* Cash * Pure Life/Single Life * Refund * Period Certain * Specified Income/Period * Interest Only * Joint and Survivor

Answer 28

* Entered into after June 21, 1988 * Fails to meet the "7-Pay Test" (*for the exam, includes ALL single premium policies*) * Distributions/Withdrawals are taxed LIFO (Interest First) * Distributions under 59½ are also subject to 10% federal penalty tax (if not disabled) * Death Benefit is still tax-free

Answer 29

* If death benefit increases by $150k or less and the insured has guaranteed insurability (no proof of insurability), the policy will NOT lose its grandfathered (non-MEC) status. * If the policy increases by ANY amount and the insured must prove insurability, the policy MAY lose its grandfathered (non MEC) status.

Answer 30

If an interest in a life insurance policy is transferred for valuable consideration (not a gift), the proceeds in the excess of the consideration paid for the policy, combined with any premiums paid by the owner, are taxable as ordinary income (like a viatical). **The main exceptions to this rule are:** A sale or transfer to the * **I**nsured (most common) * **C**orporation in which the insured is a shareholder or officer * **D**ivorce * **P**artner or partnership in which the insured is a partner **I C D P - I see dead people**

Answer 31

* Life → Life (OK) * Life → Annuity (OK) * Annuity → Annuity (OK) * Annuity → Life (NO WAY!)

Answer 32

**Stock Redemption**: * No Step up in Basis, Entity is owner and beneficiary **Cross-Purchase**: * Step up in Basis, Individual owner is owner and beneficiary

Answer 33

**Endorsement Method**: * Employer is the owner * Employee is not a shareowner **Collateral Assignment Method:** * Employee is owner * Employee is a Shareholder * Employee assigns the policy

Answer 34

**Periodic Payouts:** * Basis / Calc'd Payout = Tax-free % * Ex: $100K / ($4K x 12mos x 20yrs) **Lump Sum Payouts:** * LIFO (Interest First Rule) * Ordinary income plus 10% penalty if under 59½

Answer 35

* Must be used by March 15th or forfeited to the company (use it or LOSE it - Medical Only) * Dependent Care must be used by 12/31 * Caps: * Medical $3,050 * Dependent Care $5,000 * Not subject to income tax, FICA or FUTA * Health FSA may not be used to reimburse employee premiums paid for other health plans (such as MSA, HSA and LTC) * Expenses for LTC services can NOT be reimbursed under a health FSA, but other medical expenses can be reimbursed.

Answer 36

* Health Care Premiums * Insurance Premiums on non-discriminatory group life policy up to $50K * Company car for working conditions only * Employer-provided transit passes ($300/month cap) or parking ($300/month cap) * Occasional overtime meal money, cab fare, theater or sporting event tickets * Discounts on services limited to 20% of selling price charged to customers

Answer 37

* Health Insurance Premiums paid for self-employed, partners, and more than 2% owners of an S-Corp are Taxable Income. * 100% is deductible as an adjustment to income on the FRONT of the 1040. * This can include all types of health insurance programs.

Answer 38

Replacement Cost x Coinsurance Percent = Insurance Required [(Insurance Carried / Insurance Required) x Loss] - Deductible = Amount paid by Insurance

Answer 39

Required %: Homeowner's Policy = 80% Commercial Buildings = 90% (Use 80% replacement coverage requirement if **no** percentage is given.

Answer 40

Monthly Payment x Life Expectancy (in Months) = Expected Return Investment / Expected Return = Exclusion Ratio Example: $1,000 x 240 mos = $240,000 $50,000 / $240,000 = 20.833% 20.833% of each payment not taxable **NOTE** Once basis used up (240 mos in example), further payments 100% taxable.

Answer 41

No Tax on First $50K of Benefit. Excess taxed on Cost (Table 1) *minus* Amount Paid. _Example_ $250K Group Term Life Employee Contributes $0.20/mo per $1k coverage Table 1 Rate is $0.43 per $1k coverage Monthly Cost $0.43 x **200** = $86 (x12=Amount on W-2) Less Contribution $0.20 x **250** = $50 Total $36/mo **x12** = $432 | Note the Bold Items - Tend to Trip-up on These

Answer 42

Just remember: **No Deferred Comp** in a VEBA

Answer 43

B (Other Structures)= 10% of A C (Personal Property)= 50% of A D (Loss of Use)= 30% of A

Answer 44

* Must be *Qualified* LTC * Subject to 7.5% of AGI floor * Based on Age: * 51-60 = $1,790/year * 61-70 = $4,770/year * Self-employed: Part of the premium is deductible on the 1040

Answer 45

APL: Automatic Premium Loan (Whole Life Only) Reinstatement: Post default **proof of insurability** Conversion: To Perm ***without*** proving insurability

Answer 46

**Viatical** (Terminally Ill) * Tax-Free to Insured * Viatical pays income tax on DB less (payment + subsequent premiums). **Life Settlement** (***Not*** Terminally Ill) * LTCG for insured at time of settlement **Surrender** * Ordinary Income (& sometimes 10% penalty) * Cash Value - (Premiums - Dividends that reduced premiums)

Answer 47

Death Benefit provided *IF* applicant found to be insurable. If not, only premium paid will be returned.

Insurance Flashcards

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