FINC 475: FINAL EXAM
136 Cards in this Set
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Discovery Form
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Does not matter when the loss occurred unless a Retroactive Date Endorsement is added; Loss is covered if discovered during policy period (or within an extended discovery period after expiration)
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Loss-Sustained Form
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Loss must occur during policy period (or a prior policy term); Loss is covered if discovered during the policy period (or within extended discovery period)
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Robbery
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Unlawful taking of property from the care and custody of a person by someone who (1) has caused or threatens to cause that person bodily harm, or (2) has committed an obviously unlawful act witnessed by the insured
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Burglary
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Unlawful taking of property from inside the premises by a person who unlawfully enters or leaves premises, as evidenced by marks of forcible entry or exit
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Safe Burglary
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Unlawful taking of property from within a locked safe or vault by someone who unlawfully enters the safe or vault as evidenced by marks of forced entry upon the exterior
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Theft
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Unlawful taking of property to the deprivation of the insured (e.g. robbery, burglary, shoplifting, employee theft, forgery)
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What does "Employee Theft" cover?
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Pays for loss of money, securities, and most other property that results directly from theft committed by an employee
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What does "Forgery or Alteration" cover?
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Pays for loss from forgery or alteration of checks, drafts, promissory notes, or similar instruments made or drawn by the insured's or the insured's agent
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What does "Inside the Premises—Theft of Money & Securities" cover?
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Pays for loss to money and securities from inside the insured's premises or banking premises from:
---Theft by a person inside the premises
---Disappearance
---Destruction
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What does "Inside the Premises—Robbery or Safe Burglary of Other Property" cover?
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Pays for loss to other property inside the premises from:
---Actual or attempted robbery of a "custodian"
---Safe burglary of other property
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What does "Outside the Premises" cover?
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Covers theft, disappearance, or destruction of money and securities outside the premises while in the custody of a "messenger" or armored car company
---Also covers actual or attempted robbery of other property from a messenger or armored car company while outside the premises
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What does "Computer Fraud" cover?
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Loss of money, securities, and other property if a computer is used to transfer property fraudulently from inside the premises or banking premises to a person outside the premises
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What does "Funds Transfer Fraud" cover?
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Covers loss of funds resulting directly from fraudulent instructions that direct a financial institution to transfer or pay funds from the insured's account
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What does "Money Orders & Counterfeit Currency" cover?
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Covers loss from:
(1) good faith acceptance of money orders that are not paid upon presentation or
(2) counterfeit currency acquired in the course of business.
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What does "Social Engineering" coverage cover?
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Does not apply if an employee is "tricked" into transferring coverage
"_______ ________" coverage has been developed to address this
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What are some significant crime exclusion covered in lecture?
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---Dishonest acts by named insured, partners, or members
---Known dishonest acts prior to policy period
---Unauthorized disclosure of confidential information
---Indirect loss (e.g. loss of business income)
---Inventory "shortage" (under Employee Theft)
---Trading losses
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What, very generally, is a financial institution bond?
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Provides a range of crime coverage for financial institutions. Some other non-crime perils are also covered.
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How does a surety bond differ from insurance?
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Insurance is a contract between two parties. A surety bond has three parties
(See PowerPoint for examples)
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What are the three parties to a surety bond?
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1. Principal
2. Obligee
3. Surety (Obligor)
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Contract Bonds (Surety)
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Surety guarantees that the principal will fulfill all obligations of the contract
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License Bonds (Surety)
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Surety guarantees that the principal will comply with all laws and regulations governing his or her activities
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Public Official Bonds (Surety)
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Surety guarantees that the principal (the public official) will faithfully perform his/her duties for the protection of the public
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Judicial Bonds (Surety)
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Surety guarantees that the principal will fulfill certain legal obligations
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Bid Bond (Contract)
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Surety guarantees that if the principal is awarded a bid on a project:
1. The principal will sign a contract
2. The surety will furnish a performance bond
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Payment Bond (Contract)
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Surety guarantees that the principal will pay bills for labor and materials on the project
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Performance Bond (Contract)
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Surety guarantees that the principal will complete the work according to contract specifications
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What is "premature death," as defined in life insurance planning?
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death of a family head with outstanding unfulfilled financial obligation
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Human Life Value
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which is the present value of the family's share of the deceased breadwinner's future earnings
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Needs Approach
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the amount needed depends on the financial needs that must be met if the family head should die
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Capital Retention Approach
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preserves the capital needed to provide income to the family
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What is term life insurance and how does it work?
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protection is temporary; protection expires at the end of the policy period, unless renewed
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What is cash value life insurance and how does it work?
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(SEE SLIDES)
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Whole Life Insurance
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is a cash-value policy that provides lifetime protection
--- A stated amount is paid to a designated beneficiary when the insured dies, regardless of when the death occurs (SEE SLIDES)
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Variable Life Insurance
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the premium is level; Policyholder controls how the paid-in funds are invested; Death benefit and cash value will vary based on investment performance; Insurer bears the risk of excessive mortality and expenses; the policyowner assumes the risk of poor investment results;
Again, as life…
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Universal Life Insurance
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Premiums are not level. The policyowner determines how much to pay each month (including possibly nothing at all). (SEE SLIDES)
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Variable Universal Life
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Generally sold as investments or tax shelters
Similar to universal life, except for the following:
--- Policyholder determines how the premiums are invested
--- There may be a fixed income account for part of the funds, but mostly the interest rate is not guaranteed and there is no m…
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What is "second-to-die" life insurance?
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Pays out when the second of two insureds dies (used in estate planning)
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Who is the "policyowner"? What rights are granted under the "ownership clause"?
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The owner of the policy; The policyowner possesses all contractual rights to the policy while the insured is still living, such as naming/changing beneficiary, surrendering policy, borrowing cash value, receiving dividends, and electing settlement options
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Who is the "insured"?
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The individual upon whose death, the policy death benefit is paid
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Who is the "beneficiary"?
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The party(ies) to whom settlement is paid upon death of the insured
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What classifications of beneficiaries were discussed?
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1. Primary & Contingent
2. Revocable & Irrevocable
3. Specific & Class
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Entire-Contract Clause
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The life insurance policy and the application constitute the entire contract between the parties
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Incontestable Clause
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The policy cannot be voided for misrepresentation after it has been in force for two years
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Suicide Clause
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If suicide occurs within two years, only premium is refunded; afterwards, death benefit is paid normally
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Grace Period
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States that policyowner has a certain period of time to pay an overdue premium; if death occurs during the ______ _______, the settlement will be reduced by the overdue amount.
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Reinstatement Clause
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Policyowner can _______ the policy with a certain period of time (e.g. three or five years) by:
--- Demonstrate evidence of insurability
--- Pay all overdue premium and interest
--- Repay all loans
--- Policy must not have been surrendered for cash value
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Misstatement of Age or Sex
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If age or sex is misstated, the most that will be paid is the amount of insurance that the paid premium would have bought if age/sex were correct
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Payment of Premiums
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Spells out the interest (or "carrying charge") that must be paid if policy is paid other than annually (e.g. monthly or quarterly)
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Assignment Clause - two types of assignment allowed; what are they?
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Allows ownership of the policy to be assigned to another party, but the insurer must be notified of the assignment for it to be valid
1. Absolute Assignment: All rights are assigned to the new owner
2. Collateral Assignment: Only certain rights are assigned as a part of a loan where th…
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Change-of-Plan Provisions
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Allows policyowners to exchange their current policy for a different type of contract; additional premium or a premium refund may be involved
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War Clause
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Excludes coverage if insured killed in war
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Aviation Exclusion
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Excludes coverage if insured killed in an aviation accident (usually other than commercial passenger aviation)
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Exclusions for Certain Dangerous Activities
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e.g. scuba diving, auto racing, skydiving, travel to a dangerous country
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How does a policy loan work in a cash-value policy?
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--- As you may recall, cash value policies build up a cash value savings component that is paid out when the policy is surrendered.
--- However, the cash value may be borrowed without surrendering the policy.
--- Interest rate is specified in the life insurance contract. Can be fixe…
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What is a participating policy?
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A life insurance policy that pays dividends
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What is a nonparticipating policy?
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Does not pay dividends
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Policy dividends - how do they work?
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If an insurer's performance is better than expected, it may return some surplus to the policyowners in the form of dividends
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What are ways that policy dividends can be paid?
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1. Cash
2. Reduction of the next premium payment(s)
3. Dividend Accumulations
4. Paid-Up Dividends
5. Term Insurance (Fifth Dividend Option)
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"Nonforfeiture Options" - What are ways that the cash surrender value can be paid out?
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1. Cash Value
2. Reduced Paid-Up Insurance
3. Extended Term Insurance
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What are options for the death benefit to be paid?
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Can be set by the policyowner prior to insured's death or beneficiary could be given right to choose
1. Cash
2. Interest Option
3. Fixed-Period Option
4. Fixed-Amount Option
5. Life Income Option
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What is the significant of the following optional, premium-bearing life insurance riders?
o Waiver-of-Premium Provision
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If the policyowner becomes totally disabled, premium payments are waived for the duration of the period of disability
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What is the significant of the following optional, premium-bearing life insurance riders?
o Guaranteed Purchase Option
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Gives the right to purchase additional amounts of life insurance at specified times without evidence of insurability
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What is the significant of the following optional, premium-bearing life insurance riders?
o Accidental Death Benefit Rider
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If insured dies in an accident, the death benefit is doubled or tripled
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What is the significant of the following optional, premium-bearing life insurance riders?
o Cost-of-Living Rider
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Allows the purchase of additional life insurance to match the change in the Consumer Price Index (CPI) without evidence of insurability
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What is the significant of the following optional, premium-bearing life insurance riders?
o Accelerated Death Benefits
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Allows insureds who are terminally ill or who suffer certain catastrophic illnesses to receive a portion of the death benefit early to help pay medical care
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What are viatical settlements and life settlements?
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A terminally ill insured sells their life insurance policy to investors who hope to profit by the insured's early death;
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What is the individual mandate and how does it work? (Affordable Care Act)
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A policyowner sells a policy to a third party for more than its cash value.
-- The assignee is now responsible for premium payments.
-- Assignee hopes to profit from the transaction
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How are individual premium tax credits allocated under the ACA? (Affordable Care Act)
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-- Individuals can qualify for refundable tax credits
-- Only available to U.S. citizens and legal immigrants
-- Employees with access through an employer's plan do not qualify unless employer's plan does not have an actuarial value of at least 60% or employee's required contributio…
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What are the health insurance exchanges and how do they work? (Affordable Care Act)
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An exchange is a facility (a website is most commonly used) where participating insurers list their qualifying plans for comparison and purchase
-- Plans offered must provide specified list of benefits
-- Regulators may review rate increases and disallow the plan if the increase is cons…
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What is the employer mandate and how does it work? (Affordable Care Act)
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-- If an employer with at least 50 full-time employees does not offer "minimum essential coverage" to full-time employees and dependents, then a tax penalty of $2,000 per employee must be paid (excluding the first 30 employees)
--If an employer does provide coverage, but some employees…
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What is the small employer tax credit?
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-- Employers with fewer than 25 full-time equivalent employees and pay an average annual wage of less than $50,000 are eligible for a tax credit
-- Full credit is available to employers with 10 or fewer FTE employees and average annual wage of $25,000; credit is phased out up to limit…
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Know other miscellaneous provisions discussed in class and on slides:
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-- In 2018 an additional 40% tax on high-benefit "Cadillac" plans will be assessed.
-- Requirement that medical records be digitized
-- Payments to physicians partially linked to patient outcomes
-- Additional payroll taxes and investment income taxes for high earners (>$200,000 …
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What sort of benefits are covered? (Individual Medical Expense (Health) Insurance)
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--Protects an individual or family for covered medical expenses because of sickness or injury
--Major medical insurance
-- Broad List of Benefits:
-Inpatient hospital benefits
-Outpatient benefits
-Physician benefits
-Preventative services under the ACA
-Outpatient prescription d…
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How does a "calendar-year deductible" work? (Individual Medical Expense (Health) Insurance)
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An aggregate deductible that has to be satisfied only once during the calendar year
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How does "coinsurance" work? (Individual Medical Expense (Health) Insurance)
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The percentage of the excess of the deductible which the insured must pay out-of-pocked up to some maximum dollar amount
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How do "copayments' work? (Individual Medical Expense (Health) Insurance)
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A flat amount that the insured must pay for certain benefits
(Example: $40 for a visit to a primary care physician or $10 for a generic drug prescription)
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How do annual out-of-pocket limits work? (Individual Medical Expense (Health) Insurance)
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A limit above which the insurer pays 100% of all benefits
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What is the difference between the two? (HSA's and FSA's)
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-- A tax-exempt (or custodial) account established for paying qualified medical expenses for the account beneficiary
--A tax-favored program offered by employers to help pay for copayments, deductibles, some drugs, and some other health costs
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How does taxation work? (HSA's and FSA's)
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-- Paid with pre-tax contributions
-- If used for qualified medical expenses, money is tax-free
-- If used for other than qualified medical expense after age 65, disbursements are taxable
-- If used for other than qualified medical expenses before age 65, disbursements are taxable and…
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Which one is "use-it-or-lose-it"? (HSA's and FSA's)
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Flexible Savings Account (FSA)
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Flexible Savings Account (FSA)
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Health Savings Account (HSA)
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What are typical characteristics of these plans? How do they work? (Long Term Care Insurance)
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-- Daily limit for covered expenses
-- Elimination (i.e. waiting) period, such as 90 days
-- Must meet one of two benefit triggers:
1. Insured cannot perform a certain number of Activities of Daily Living (ADL)
2. Insured needs substantial supervision due to sever cognitive impai…
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Disability Income Insurance
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Coverage that replaces a portion of lost wages as a result of the insured's inability to work due to a disability
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What is an elimination period? (Disability Income Insurance)
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Policies normally have an elimination (waiting) period before benefits begin
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Guaranteed Renewable (Policy Renewal Provisions)
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Ability to renew policy is guaranteed, but insurer can raise rates for the class as a whole
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Noncancellable (Policy Renewal Provisions)
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Insurer cannot cancel or nonrenew policy and cannot change premiums
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Conditionally Renewable (Policy Renewal Provisions)
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Policyholder can renew until specified age, but insurer has right to nonrenew in certain circumstances
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Nonrenewable (Policy Renewal Provisions)
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Coverage expires at the end of the term and cannot be renewed without the insurer's agreement
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What are some significant exclusions discussed? (Individual Medical Expense (Health) Insurance)
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-- Care not medically necessary
-- Elective cosmetic surgery
-- Dental care
-- Vision care
-- Investigative or experimental treatment
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Total Disability
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Different definitions ranging from total inability to work to inability to do your regular occupation
(Often two part definition (more lenient at first, then more stringent)
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Partial Disability
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-- Can perform some, but not all, of the duties of your occupation
-- Benefits paid at a reduced rate for a limited period
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Residual Disability
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-- You are gainfully employed and not totally disabled but, solely because of sickness or injury, your loss of income is at least 15 percent of your prior income
-- A reduced benefit is paid
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Definition of "employee benefits"
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Employer-sponsored benefits other than wages, which enhance the economic security of individuals and families and are partly or fully paid for by employers
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Characteristics of Group Insurance
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--many people are insured under one master contract
--Cost savings can be obtained by purchasing coverage as a group
--Insurer is concerned with underwriting the insurability of the group as a whole, not any single member
--If the group is sufficiently large, experience rating, based o…
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Contributory vs. Noncontributory Plans
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--Premiums are paid entirely by the employers and all employees in the group are covered
--Employees must elect to participate and pay part of all of the cost
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Group life insurance
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--Yearly, renewable term insurance for employees
--Can be a flat face value for all or may be a multiple of employee's salary
--Some life insurance coverage may also be provided for spouses and children
--When employees leave the company they can often convert their coverage int…
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Group health insurance
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plans cover hospital care, physician and surgeon fees, prescription drugs, and related medical expenses for members of the group
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What are Blue Cross and Blue Shield Plans
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-- Most BCBS plans operate managed care networks
-- Many are nonprofits and are regulated and taxed differently from commercial insurers
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How does employers self-insurance work?
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-- Employers pay some or all of the cost of care
-- Often paired with "stop-loss" coverage for each participant
-- Employers will generally have an agreement with an insurer to provide administrative services, network development, etc.
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Types of Managed Care Plans (HMO's)
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An organization that provides comprehensive medical services to its members on a prepaid basis
**A gatekeeper physician is a primary care physician (PCP) who determines if the involvement of a specialist is needed
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Types of Managed Care Plans (PPO's)
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A plan that contracts with health-care providers to provide certain medical services to plan members at a discounted cost
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Types of Managed Care Plans (Point-of-Service Plans)
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--- Like HMO, there is a gatekeeper physician, who controls access to specialists within the network
- Much lower out-of-pocket costs to use in-network physicians
--- Options to go out of network, but patient pays a much higher portion of the costs.
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What is a coordination of benefits provision?
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A clause in the policy that specifies the order of payment when an insured is covered under two or more group health plans
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What is COBRA coverage and how does it work?
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"Qualified events" spelled out in the Consolidated Omnibus Budget Reconciliation Act of 1985
--Termination for other than gross misconduct
--Divorce, separation, or death of employee
--Child attains maximum age
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Group Dental
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Pays cost of normal dental care and damage to teeth from an accident
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Group Vision
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Provides coverage for routine vision correction services
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Group Disability
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Provide weekly or monthly cash payments to employees who are disabled from accidents or illnesses
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What are "Cafeteria Plans"?
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Allow employees to customize their benefit package by selecting certain benefit options
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Full Choice Plans
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Employer provides a set number of credits that can be used to select benefits or taken as cash
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Premium Conversion Plans
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Employers offer a slate of optional benefits that employees can pay for with pre-tax payroll deductions
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What is Accidental Death & Dismemberment (AD&D) Coverage and how does it work? What is the significance of the "principal sum"?
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--- Provides coverage for injuries sustained in accidents
--- Applies to members of the "group" specified in the policy
-I.e. "employees," "volunteers," "participants," "students," etc.
--- Full principal sum paid in case of death
--- A set percentage is paid for each type of dism…
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Characteristics of social insurance programs
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-- Compulsory
-- Specific earmarked taxes fund program
-- Benefits weighted in favor of persons with lower incomes
-- Programs designed to achieve certain social goals
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What is the purpose of the program and who is included? (Social Security (OASDI)
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-- Virtually all private sector employees
-- Federal civilian employees hired after 1983
-- Most state and local government employees
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How is insured status determined? (Social Security (OASDI)
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By earning "credits"
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Fully Insured
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Have earned 40 credits
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Social Insurance
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Government insurance programs with certain characteristics that distinguish them from other government insurance programs
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Currently Insured
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Earned at least 6 credits in last 13 calendar months
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Disability Insured
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Meet two tests (on sliding scale by age):
1. "Recent work" Test: Total number of credits
2. "Duration of work" Test: Total (non-consecutive) years of work
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Unemployment Insurance
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-- Federal-state program that pay weekly cash benefits to workers who are involuntarily unemployed
--Most private firms, state/local governments, and nonprofits are covered for unemployment insurance
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What is the current retirement age for those born after 1960?
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67
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What is the early retirement age?
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62
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What is the Primary Insurance Amount (PIA)?
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Monthly amount paid to a retired worker at the full retirement age or to a disabled worker
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What is the Average Indexed Monthly Earnings (AIME)?
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Average earnings adjusted for inflation
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What is a Delayed Retirement Credit?
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A factor that the Primary Insurance Amount (PIA) is increased if workers delay receiving benefits beyond the Full Retirement Age
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What is a COLA?
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Benefit payments adjusted each year according to inflation
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What is the earnings test? Who does it apply to?
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Benefits reduced for certain persons with high incomes:
--The beneficiary elects to receive benefits before the full retirement age
-AND -
--The beneficiary has earned income during the year
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Who is eligible for Unemployment Insurance?
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-- Earn qualifying wages and employment during base prior
-- Be able and available for work
-- Actively seek work
-- Meet a waiting period
-- Nonmonetary eligibility requirements (e.g not quitting job without good cause, not fired for misconduct or labor dispute, etc.)
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Who is eligible for survivor benefits?
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-- Surviving Spouse of a Retired Worker
-- Spouse with Dependent Children under Age 16
-- Unmarried Child under 18
-- Unmarried Child over 18 with Ongoing Disability
-- Dependent Parents
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Primary Benefits: Unemployment Insurance
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in most states 26 weeks
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Who is eligible for disability benefits?
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-- Disabled worker
-- Spouse of disabled worker
-- Unmarried children under 18
-- Unmarried, disabled children over 18
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Medicare: What is covered under Parts A&B?
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--(Hospital Insurance): Covers inpatient hospital stays and certain other services like home healthcare and hospice.
--(Medical Insurance): Voluntary program that covers physicians' fees and related medical services.
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Medicare: What are Medicare Advantage Plans (Part C)?
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-- Private health insurance plans that form part of the Medicare System
-- Plans must cover everything that Parts A and B would cover, and they include other services beyond
-- Plan members pay a monthly premium
-- Generally involve a network of providers
-- Include HMOs, PPOs, and ot…
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Medicare: What are Medicare Prescription Drug Plans (Part D)?
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--Private plans run by an insurance company to provide prescription drug coverage.
--Beneficiaries select a specific prescription drug plan and pay a monthly premium
--Low-income beneficiaries can have premiums and deductibles waived.
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Medigap Insurance
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-- Private plans regulated by the federal government
-- Close Medicare coverage gaps (e.g. deductibles, limitations, certain expenses)
-- Different plans given a letter (A through N) - combination of benefits for each plan set by law
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Extended Benefits: Unemployment Insurance
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a number of additional weeks (often 13 weeks) in states with high unemployment
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Emergency Benefits: Unemployment Insurance
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In case of recession, Congress can authorize additional weeks
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FINC 475 EXAM ONE