Qualified Plan
-approved by IRS for favorable tax treatment
- tax deffered growth
Qualified Plan Requirements
1) Be in writing 2)provided for benefit of employee 3) must satisfy age and serive standards 4) cannot be discriminatory 5) contributions cannot exceed yearly maximus 6) must provide survivorship benefits 7) must meet miniumum vesting standards 8) cannot
Advantages of Qualified plans
- employer and employee contributions are tax deductivble and accumulate tax deferred
- Withdrawls before 59.5 is a 10% penalty
- must begin miniumum distributions by age 70.5
Qualified Plan distributions
- taxable upon withdrawl
- 10% penalty upon withdrawl before 59.6
- can take out w/o penalty if death, divorce, qualified financial hardship, plan loan or qualified rollover, 1st time home buyer, disability of owner
- if you take out the money early, its
Penalty for Withdrawl of Qualified Plan
- a 10% penalry plus applicable state and federal taxes
IRA IIndividual Retirement Account)
- all individuals who have earned income
- possible tax deductions
- tax deferral of gains
- Can contribute up to 5,000
- can add 1,000 "catch up" if over 50
Education IRA
- method to provide funding
- Can be transferred to another IRA at 30
Section 529 Plans
- state provided
- can be funded by after tax dollars
- can pay prepaid tuition
- All earnings exempt from federal taxes
- If withdrawn for unqualified withdrawl, 10% penalty
Roth IRA
- Allows owner to make non tax deductible contributions
- to get withdrawls tax free, the account must be in existence for 5 years
- can add money tax free up to 5k
- distributions are tax free
- account is only allowed for people who's income does not ex
SEP IRA (simplified Employee Pension Plan)
- employer sponsored IRA for small employers
- contrinutions deductible to employer
- Employee must have worked for 3 of last 5 years
- contributions by employer cant exceed 49k or 25% of income, whichever is lesser
- contributions for employees cant exce
Keogh Plan
- self employed and employees
- replaced by SEPs
401k Plan
- allows employees to save for retirement tax free
- money is taken out pre-tax, and can be matched (and deductible to employwer)
- Withdrawl penalty of 10% prior to age 59.5
- Miniumum distributions by age 70.5
- 2011 max was 16,500
403(b)/tax-sheltered Annuity
- availbale for employees of nonprofits, schools universities, churches & hospitals
- just like 401k plans
457 Deffered Compensation
- available for employess of state and local govt
-the plan is owned by employer
Profit Plan
- part of defined contribitution plan
- annual profits shared among employees
- no guarantee of payment
Pension Plan
Retirement Plan that calculates benefit based upon years of service and income averages
ESOP
- employee stock ownership plan
- defined contribution plan that provides employer stock to employees based on income and profits of company
Defined Benefit Plan
- indicates amount of future benefit, based upon years of service and avg income
Defined Contribution Plan
- indicates amount of contribution from employer without knowing the benefit
What is taxable in an IRA
- both the contributions and the growth or earnings
How much can you contribute to an IRA
100% of earnings or not to exceed 5,000
Until What age can you contribute to an IRA
70.5
Group Insurance
- consist of term life insurance or whole insurance
- the employer is the owner and receives the master contract
- the employees are cirtificate holders which outlines the details of it
- underwriting is much more liberal because its a large group and pro
Can any group form an insurance plan
NO , you need a common bond (eg trade association)
Group Plan Insurance Conversion
- can convert within 31 days without proof of insurability, if they leave
- You normally convert to a universal life polity
- pricing is based on age
- the employer still ows the policy but he cant name the beneficiaries
Group Life insurance Premiums
- employer pays all of it (non-contributory plan)
- Contributory - employee pays all of it
- but 75% of employees have to participate
Group Life Insurance Premiums Tax issues
- The beneficiary still recieves the death benefit tax free and its still an employer expense (tax deductible) but if the insurance is over 50k, the employee counts the premium paid by the employer as income
Social Security
- employee and employer pay 7.65% of their payroll
- Self employed pay 15.3%
What are the benefits of Social Security
- provides for retirement check
- provides for disability
- benefit to survivors
- death benefit of $255
What do you need to get Social Secutiry
- You have to work for 40 qtrs or 10 years
What benefits do you get from SS
- it depends on how much you've contributed or your Primary Insurance Amount (PIA)
Insurance Definiation
- Transfer of risk from 1 party to another utilizing a legal contract through the pooling or accumulation of funds
- transfering financial consequences of death to the insurance company to help pay
Consideration
Premium payment + application
Indemnity
- Stated amount of death benefit in the contract
Risk
the uncertainty or chance of loss
Mortality Tables
show statistical averages or possibility of death at a certain age
- helps determing premium
Morbidity Tables
shows statistical average or possibilty of becomeing disabled and the extent of it
Pure Risk
Chance of loss with no means of profit
- only pure risk is insurable
Speculative Risk
Chance of loss or gain
Loss Exposure
the amount of risk in dollars the insurance company is taking
What kind of Risks are insurable
- loss must be accidental
- loss must be definable (or calculable)
- must not be financially catastrophic
- premiums must be reasonable
Retention
The act of the individual taking on the risk themselves, or retaining some of the cost themselves
Peril
An example of what caused the loss (ie: death)
- a fire
Hazard
A condition that exists that increases the chance of a loss occuring
What are the 3 types of Hazards
1) Physical
2) Moral
3) Morale (ie apathy, carelessness, smoking)
Life insurance adds to what?
The estate of the individual
What are the 6 things that need to be in a life insurance contract
1) the parties
2) the party who is the insured
3) the insurable interest of the owner of the policy
4) the risk being insured agains (ie death)
5) the coverage period
6) the premium and the mode
Insurable Interest
- the amount that the insurance co is at risk for; One can have an insurable interest in another
What does the insurance company need to pay the death benefit
- death cirtificate
- completed claim form
Human Value approach
- the approach to determine how much insurance one should get
- it looks at the lost earnings potential if someone should die
- often limited to 10x annual income
Needs Approach
- the amount of money to pay off debts, funeral, shcool, etc
How are life insurance premiums determined
1) Mortality (the probability of death)
2) Interest (how much the insurance co earns on the premiums)
3) Expenses (cost of issuing the policy)
Net Premium
Mortality + Interest costs
Gross Prium
Mortality + interest costs + expense costs
Rate
The price of insurance per 1000 of coverage
ie if it costs 3.45 / unit than u multiply by 1000 to get total cost
Earned Premium
the amount of premium that has been paid to date
Unearned Premium
the amount that has not been paid to date but if he pays more, than he gets it back
Departments of an insurance co
1) underwrite
2) marketing and sales
3) Actuarial Department
4) Claims Department
Underwriting department
determines whether the applicant can get insurance
Actuarial Department
Determines the premium rates, reserves and persistency rates of policies
Types of Insurance Companies
Determined by where they are located
Domestic Insurance Co
Charter located in the state it's doing business in
Foreign Insurance Co
Insurance Co that's allowed to do business in a state other than their home state
Alien Insurance Co
An insurer authorized to conduct business in any of the 50 states but who has its hoje office in another country
Ownership of Insurance Company
2 types
1) mutual co or participating company (policy owners own the company). The dividend is considered a return of premium
2) Stock company or Non participating company
Authorized Insurance Company
An insurance company that can operate in a state. You need a cCertificate of Authority to operate.
Cerrtificate of Authority
What an insurance company needs to have in order to operate in a state
Fraternal Organization
A non profit or benevolent association and only can provide insurance to its members.
Fraternal Agent
The agent of the fraternal organization that can sell the insurance
Reciprocal Organization
an unincorporated organization whereby members insure eachother. managed by an attorney in fact
Attorney in Fact
the agent in a reciprocal organizaiton that can sell the insurance
Lloyds Association
group of individuals who share the risk and the exposure
- known for insuring unusual risks
Surplus Lines of Insurance
An insurance co that is authorized to sell unauthorized insurance. You can only go to a surplus lines co if you cant get it from a regular insurance company
Risk Retention Group
- each policy owner is also a stockholder and can only sell liability insurance (medical malpractice, general liability, product liability)
- the group assumes the risk themselves
Reinsurance
Insurance purchased by insurance companies
- limits liability of insurance co and prevents catastrophic loss
Facultative Reinsurance
insurance co and re insurance co make their own agreement per loss exposure
Automatic or Treaty Insurance
An automatic acceptance of a risk between the insurance company and the reinsurance company
Retrocession
When a reinsurance company reinsures with another reinsurer
Primary Insurer
The insurance company that is transfering its risk to another insurance company
Federal Regulation 18 USC 1033/1034
Anyone who tries to sell insurance deceptively
- can be fined 50k and up to 10 years
- If material misrepresentation was the primary cause of the insurance co going under, than the prison scentence could be 15 years
Violent Crime Control Act
It is illegal for an individual who's been in a crime involving dishonesy, breach of trust of fiduciary responsibility to work in the business of insurance without consent from the insurance regulatory official
Types of Marketing and Distribution systems
1) Independent - places insurance with multiple insurers; owns the business and the policy sold
2) Direct or Captive agents - can only place business with own company
3) Exclusive - Independent agents that place business of one insurer
4) Direct Response
PPGA (Personal Producing General Agent )
- an individual producer that does not appoint other producers
MGA (Managing General Agent)
- appoints hires and supervises producers while also providing underwriting and claims administration
Types of Producers
1) agents
2) brokers (they represent themselves and the people they are trying to buy insurance for
3) solicitors
4) Customer service representatives
Tort of Error and Omission (E&O)
When a producer engages in an honest or unintentional mistake
- producer can buy E&O insurance
What does E&O insurance not cover
- fraud or ciminal acts
- misappropriation of client funds
- actions covered by other insurance
Concept of Agency
- the relationship that exists between 2 parties; the principal (or insurance company) and the agent or Authorized Rep
An agent has 3 types of authority
- Actual or expressed authority as defined in his contract
- Implied Authority - business practices that man not be listed in a contract
- apparent authority - what the public thinks the agent has
Implied Authority
the authority that the agent has that is not specifically listed in their contract
Actual authority
the actual authority that an agent has as stipulated in his contact
The law of contracts - 4 elements of a contract
4 essential elements of a contract
1) agreement
2) consdieration
3) Legal Capacity
4) Legal Purpose
Agreement
an offer and acceptance or a meeting of the minds
Consideration
the exchange of of one value for another
- there are 2 parts to the consideration 1) the application 2) the premium
Legal Capcity
when the insurance co is legally allowed to sell and when the inseree is competent and not a minor, insane, drugged or coerced
Legal Purpose
sale cannot be contradictory to the good of the public
Unilateral
a one sided contract - only 1 side makes a legally enforcable agreement. (The insurance co has to adhere to the contract) but the insured person doesn't have to pay premiums forever
Adhesion
That the policy owner must adhere to the terms of the contract ie: pay the premiums
Aleatory
the concept of recieving a value greater than what was paid based on a possible future happening
Conditional
the insurers promise to pay if the condition occurs (ie death)
Personal
when benefits are provided to an individual
Fiduciary
position of trust
Statements made on an insurance application
1) Representation
Representation
- oral or written statements made by an applicant when completeing an application
- true to the best of his knowledge and belief
- can be changed prior to policy issue NOT afterwards
Misrepresentation
a false statement made by an applicant but that does not effect the issue of the policy ie if the applicant puts the wrong address.
Material Misrepresentation
- a false statement that changes the outcome of issueing a policy
- generally with the health statement
Warranty
statement made by applicant to be totally true; generally used when underwriting property and casualty
Concealment
The failure to disclose material facts. Concealment is grounds for recission by either party
Fraud
intentional deception; grounds for recission
Recission
the cancellation of a contract; goes back to policy inception with all premiums paid minus and payments; usually do to fraud, concealment or material misrepresentation
Idemnity
a policy holder or insured is made whole without profiting from the loss.
Waiver
the voluntary surrendering of a known right like military premium
Estoppel
- a broken promise and may prevent denial of a claim by insurance company
3 Parts
1) When insurance agent makes a false statement upon which the insured believes
2) The insured relies on the truthfulness of the statement
3) Harm results - the insurance co
Parol Evidence Rule
when oral statements made prior to the contract issue cannot be used to contradict the written terms of the contract
Underwriting
an attempt to determine if coverage should be issued as applied, issued on a rated basis (ie higher premium) issued on a preferred rate or denied
The application has 2 parts
1) section 1 = general info about the applicant
2) Detailed health info of appliant
3) (sometimes) agent report
Field Underwriting Duties
completing the application and collecting the premium (agent doesnt issue policy)
What do you need on an application
1) Applicant and agent need to sign
2) Agent cant make changes and if the agent changes something, the aplicant has to initial it
Premium Payment
-application and premium must be submitted or else coverage doesnt begin
- Trial application goes into effect if 1 of the 2 things is not handed in
Receipts
Insurability Type Conditional Receipt
Insurability Type Conditional Receipt
When applicant hands in application and premium, then if the policy is approved, the the contract begins on the day he handed it all in; sometimes a medical exam is needed to have it approved
Approval Type Conditional Receipt
Approval starts only after policy has been approved, not any sooner
Binding Receipt
Provides coverage as soon as premium is received (before approval)
Free Look Provision
Applicant has 10 days to cancel policy
Medical Information Bureau
intercompany databank with info gathered from previous applications; helps eliminate high risk applicants
Fair Credit Reporting Act of 1970
applicant has right to see all the stored information upon which the policy is either approved or denied
Once an applicant is approved, what are the 4 types of categories he fits into
1) preferred
2) standard
3) sub standard (requires higher premium)
4) uninsurable
rate - up
when insurance co rates up the premium because the applicant has higher risk
Policy Delivery
policy can be delivered 1)certified or registered mail 2) personally delivered by agent 3) 1st class mail with signed receipt 4) by any other means approved by superintendent
Entire Contract
The original or photo copy of original application with the policy too
Cobra
if terminated, the employee can still receieve insurance but has to pay it themselves. Premium charges cant exceed 102% of the group premium; you can get it for 18 months or 36 months if one of you dies, gets divorced or child leaves home
Policy Clauses
- Incontestable Clause
- Payment of Premium Clause
- Grace Period
- Reinstatement Period
Incontestable Clause
-addresses material misrepreresenations by applicant.
- Insurance Co has 2 years to discover it
- If found, the insurance co has to repay all premiums
- If there's fraud, than the insurance co can return premiums any time
Payment of Premium Mode
- the frequency of premium payments
- Monthly payment is the most expensive bc of the administrative costs associated with it
Grace Period
- the period of time (31 days) that the policy owner has to pay the premium
Reinstatement Provision
Applies to the timeframe that an insurer hasn't paid premium but wants the policy back.
- You have 3-5 years to reinstate
- proof of insurability and back premiums plus interest would have to be paid
- If you havent heard back in 45 days, then the policy
Owner's rights provisions
- can change the beneficiary
- can borrow cash value
- can receive dividends
- select premium mode
- assignment rights
- The beneficiary has no rights in the contract
Assignment
The transfer of owner rights from 1 party to another
1) Absolute assignment
2) Colateral Assignment
Absolute Assignment
when all rights of the original owner passes to another party (parent to child)
Colateral Assignment
when some of the rights are passed on to a 3rd party ie whole life cash value to secure a loan
Entire Contract Provision
the policy owner is entitled to the entire contract so that he knows any riders or waivers
Conversion Provision
allows policy owner to convert 1 type of life insurance to another
- have to convert to same or lower death benefit
When do you have to provide evidence of insurability?
only when whole converts to term.
Misstatement of Age / Sex or Gender
Allows insurer to adjust the premium if either age or sex is misstated.
Free Look Provision / Right to Examine Provision
upon delivery of the policy, the policy owner has 10 days to review the contract and a full refund on payment would occur
War Policy Exclusions
status exclusion - no insurance if part of military
Results exclusion - coverage provided if death is direct result of battle or maneuver
Suicide
Aviation Exclusion
Coverage exists if on a regularly schedules flights
Revocable Beneficiary
policy may change at any time and requires change of beneficiary form
Irrevocable Beneficiary
beneficiary cannot be changed
- used by banks or in divorces
- if beneficiary wants the contract, he can get it
Common Disaster Clause
When insured and primary die at the same time, it is assumed that the primary died first
Spendthrift Provision
When insurance company retains the proceeds. It Protects beneficiary from creditors as long as the death benefits are left with the insurer.
Proceeds left for beneficiary cant be touched if left at the insurance company
Types of Trusts
Testamentary Trust
Inter Vivos Trust
Class Designations
Testamentary Trust
A Trust that is created in the will of the deceased
Inter Vivos
trust creauring during the life of the insured
Class Designations
names a "class" instead of each name specifically like "all my children born into the marriage...
Per Capita
means per person or per head ie: if 5 children existed but 1 dies, the $ goes to 4 children
Per Stirpes
means per family line ie if 5 children and 1 dies, then 4 children and the kids of the 5th would get the $
Facility of Payment provision
Allows for a relative to get some of the payment from the benefits because the person is helping paying for the funeral and hospital etc
Insuring Clause
- Appears on first page of contract
- has a summary of all the main points of the contract like the "promise to pay" death benefit
Policy Loan Provision (APL)
- Owner has right to borrow against the cash value of the contract
- not available for first 2-3 years of policy
- interest is due on the policy aniversary date, not the loan date
- An insurance co can delay a load of upward of 6 months
Automatic Premium Loan
Allows the insurer to borrow from the cash value to pay unpaid premium after grace period expires. It makes sure that the policy does not lapse
Non Forfeiture Options
options available only to policy owner and only if there is cash value in the policy
- Surrender for Cash
- The amount of value that exceeds premium payment is taxable
Extended Level Term Insurance
owner of policy can convert the whole life policy to a level term policy
-must have the same death benefit
Reduced Paid - up Permanent Insurance
policy owner surrenders the policy and uses existing cash value to purchase smaller, fully paid up whole life policy
Surrender for Cash
policy owner takes the money thats been built up in their policy
Insurance Dividends
Considered to be a return of overpaid premiums and is not taxable. You can get the dividend in the form of CRAPPO
- Cash
- reduction of premium
- allow the dividends to accumulate at interest (the money earned on the returned dividend is taxable as ordina
Settlement Options
The way the policy is paid off and could be selected at time of policy origination
5 options
1) Lump Sum
2) Fixed Period (allows for income for a definite period of time)
3) Fixed amount (can be altered)
4) Interest Only (only interest is paid out and is
Waiver of Premium Rider
should the owner be disabled and cant earn an income, after 6 months, all premiums will be paid by the insurer during the disability period; After 6 months, the premiums will be repaid
Accelerated Benefit Rider
A living benefit or terminal illness rider
- if you have terminal illness, you can use the money before you die and it reduces the overall death benefit
Family Rider
insurance to cover spounce and children
Accidental Death Rider (multiple indemnity rider)
only provides benefit if death is caused by an accident and death must occur within 90 days; its cheap bc it can only take effect if caused by accident and if you die w/in 90 days.
Principal Sum
The benefit dollars received from accidental death. Dismemberment is always 50% of the benefit
Guaranteed Insurability
When an insured wants to buy additional insurance later on and doesnt want to worry about having to take physical exam; premiums will be adjusted
Return of Premium Rider
the death benefit will increase in proportion to the premium increases
Payor Rider
When an adult insures a child, premiums will be waived until the child reaches 21, if the adult dies or is disabled
Viatical Settlement Provider
When a company purchases life insurance from a policy owner. They buy a % of the death benefit. They must pay the premium on the policy. It is usally sold to terminally ill patients (death of 24 months or less)
Viator
The policy owner who considers viatication (the seller)
Viatical Settlement Broker
Negotiaties bw the 2 parties
no more than 2% of amount paid to viator as compensation
Annuity
A contract that provides income to an annuitant for a lifetime or a specific period of time. It is the liquidation of an estate or pool of money. Protects against outliving ones income; pays a higher interest; only sold by life insurance
Accumulation Phase
the period of time by which the owner of the contract pays in to the annuity; a beneficiary must be named if the policy owner dies during the accumulation phase.
Annuity Phase
the period of time when the owner recieves payment;
Qualified Annuity
it receives tax deductibility and tax deferred growth
Non Qualified Annutiy
Funded with after tax dollars but the interest earned is tax deferred
Annuity Classifications
The way the annuity is funded
Fully Funded - 1 lump sum
Periodic premium - can pay in level or flexible
Immediate Annuity
contract owner gets money immediately only if it is funded with a lump sum
Deferred Annuity
defer payment to a later date
Fixed Annuity
after the insurance co gets the funding, they guarentee a minimal rate return. more conservative; money goes into general account
Variable Annuity
money is put into separate accounts and the growth will fluctuate. The payouts are also variable
Disposition of Proceeds
Straight Life or Pure Life
Life with Period Certain
Straight life or Pure life annuity
income for life with no refund to survivor.
largest monthly income because its the highest risk.
Life with Period Certain
When policy owner wants to get income for life but also wants to guarentee that a survivor gets a benefit if he dies for a certain period of time; made in 5,10,15 and 20 years option
Annuity Certain
pays income only for a certain period of time
Joint Life Annuity
payment to two or moer annuitants which ceases upon death of either
Joint & Survivor
payment to two or more annuitants and if one dies, the other still gets payments
Cash refund Annuity
lifetime of annuity payments and payment of undistributed annuity costs
Surrender Charges
Should an owner transer monies before the stated period of time, their are charges; one can take out 10% without charge
Guaranteed Minimum Withdrawal
allows owner to protect the value agains downside market risk by allowing the annuitant to withdraw a stated % of account per year
Qualified Withdrawals
before 59.5 yrs of age, theres a 10% irs penalty
Equity Indexed Annuity
allows for stock market appreciation with downside protection; guarantee of principal;
Participation Rate
In a guarenteed annuity like an equity index annuity, the insurance co will keep a % of the index gain as a fee for the guarentee
Market value Adjusted Annuity
a fixed annuity which shifts some of the investment risk to contract holder
Modified Endowment Contract
An IRS classification of an actual insurance contract; If the premiums paid for it are higher than the proportion of the death benefit (overfunded policy) it will lose many of the tax advantages
7 Pay Test
if premiums paid during the first 7 years exceed the net level premium that should have been paid, it is a MEC (Modified Endowment Contract)
Key employee Life Insurance
-compensates business due to death
- cant be business owner
- 3rd party contract so key employee needs to sign
- the death benefit goes to the company
Business Continuation Plan - Also called "Buy Sell" or Entity?ERKERKERK
Provides for business continuation in the event a partner dies using life insurance
- Allows money to be available to purchase deceased partner's beneficiaries interest
- pre arranged purchase price
Cross Purchase Plan
When there are lots of partners, each partner would beed to buy a policy on the other partners. EG: 7 parnters, each buy insurance on the other 6 partners so there are 42 (7x6) contracts
Split Dollar Plan
When the employer funds the cash portion of a whole life plan and the employee funds the term part of the plan
-at death, employee receives death benefit and employer receives cash calue of plan
Deferred Compensation Plans
- a non qualified plan
- employer deffers payment of salary until a later date
Salary Continuation
-employer funded
- employer agrees to continue salary after retirement in exchange for consultative services
Corporate Owned Life Insurance
Company buys insurance but is allowed to change who is insured
-less expensive due to lower fees, commisions
Section 162 bonus plans
Non qualified benefit
- allows employer to purchase life insurance for the person who was going to get the bonus
- it is an employer expense and reduces employee's total bonus, but the money goes to the employee's beneficiary
Accident and Health policies
1) Disability Income policy
2) Medical Expense Insurance
3) Long Term Care
Elimination or Waiting periods
If disabled, there is no benefit paid for a certain period of time. The longer the waiting time, the lower the cost or higher the deductible
Probationary Period
A one time event at policy issue, usually 30 days where illness is not covered
No Loss / No Gain
indemnity only, no profit so you cant have 2 policies covering the same thing
Blue Cross Blue Shield Plan
Blue Cross - is designed for hospital benefits
Blue Shield - is designed for physicians
- operate in limited geographic areas
- Not all hospitals except BCBS
- operate on a sevice basis
- was established as a non profit service organization
- premiums are
Subscribers
term used for those who participate in an HMO or BCBS plan
HMOs
- established as alternative to fee for service
- attempt to control costs with preventative medicine
- pre paid premium
- Members are called enrollees or members
- closed panel HMO
Closed Panel HMO
- dr are considered employees of the HMO
- you have a primary care physician or Gatekeeper
PPO
Preferred Provider Organization
- enters into contractual agreements with hospitals and doctors in order to provide services at a reduced cost
- the insured will pay a lower deductible
- the drs get more volume
Point of Service Plan
designed to provide a higher level of managed care
- allows your physician to refer in or out of network
Employer administered plan
Employer self funds up to a specific dollar amount per person
- allows the owner to reduce costs
- must be a large group of people
- there's a 3rd party administrator to handle logistics
Multiple Employer Trust (MET)can ppo
a trust to get groups of people with similar interest to pool together to buy group insurance
Multiple Employer Welfare Association (MEWA)
its a method for small employers to band together with other similar groups to buy group insurance
- must have common affiliation (ie chamber of commerce)
CHAMPUS or Tricare
Govt organization that provides health care benefits for dependents of military personnel
May be called Tri Care
Disability Policy
defined as the inability to perform your own normal occupation or daily duties
- designed to offset loss of income due to accident or sickness
- can be more restrictive and therefore lower premiums
- the more liberal the definition the higher the premium
Presumptive Disability
type of total and permanent disability based upon loss of sight, hearing, speech and loss of limb. Need to lose 2 limbs
Loss of earnings test
Benefits are based on eared income, not unearned incom
Partial Disability Rider
the inability to perform some but not all of your daily duties
- addedonly as a rider
- will pay only 50% of disability benefit up to 6 months
Residual Disability Rider
another form of partial disability
-based on a % of lost income
- fluctuates monthly and may exceed 50% (unlike partial disability which pays up to 50% and for a limited time)
- if you lose 80% of income, you get the full disability
Injury / Accident vs sickness / illness
an outside event that causes injury vs an internal sickness
Recurrent Disability
should the same disability reappear within 6 months after supposed recover, the disability will be considered a recurrence or continuation of original disability
- no new elimination or waiting period
- if disability reappears after 6 months, a new disabi
Elimination (Waiting) Period
period of time preceding each disability during which benefits are not paid
-similar to a time deductible
- the longer the elimination period, the lower the premium
Malingering
the reason the disability income does not pay 100% income is because there wouldnt be any incentive for person to get better
- long term plans last more than 1 yr to age 65
Waiver of Premium
if you are disabled, after 90 days, the premium is waved
- life insurance its 6 months
Occupational Policy
a disability policy that provides coverage on and off the job
- usually bought the self employed
Non Occupational Policy
a disability policy for coverage only off the job
- part of a group policy
24 Hour Coverage vs Limited at work
If its difficult to determine where the disability occurred (carpel tunnel, back injuries) then its difficult to determine which policy pays
24 Hour Coverage
covers all disabilities (on or off the job)
- covers medical benefits for occupation injuries
-more cost effective
- less administrative issues
Non Contributory Group Disabiity policy
Employer paid premium
- premium deductible to employer
- benefit is taxable to employee
Individual Disability Tax considerations
premium is not tax deductible but benefits are tax free
Contributory Disability Policy
Employee pays all or part of premium
-premium is deductible to employer
- benefit it taxable to employee but only the portion based on the employer contribution
Disability policy Exclusions
- war / military
- intentionally self inflected
- aviation (not commercial flights)
- Foreign Country
- loss of professional license due to misconduct
- can get paid if there's a mental disorder
Short Term Disability payouts
has a potential benefit bw 13 - 52 weeks or
Guaranteed Insurability Rider
Allows insured to purchas additional amounts of disability income insurance at future dates
- future dates are policy anniversary dates
-added coverage can be attained but must prove income increase
- AKA Additional Purchase or Future Increase Option
Accidental Death and Dismemberment (AD&D)
Accidental Loss only
- must die w in 90 days
-if dismembered, you get 50% of death benefit
- Death benefit is called Principal Sum
- Dismemberment benefit is Capital Sum
- Must dismember above ankle or wrist
- one of the least expensive policies bc of lim
Disability Riders
Cost of living rider
- increase in benefit occurs on the yr anniversary of accident
Social Security Benefit
- proves benefit until SS pays
- payable for 1 year
Rehab Rider
- assists individual to return to work
Return of Premium rider
- refund of premium
Business Overhead Expense
Pays the business if the small business owner gets disabled
- Its purpose is to pay overhead expenses to keep the business in business
- premiums are tax deductible with benefits being taxable
Workers Compensation
Provides coverage for injuries and illness occurring on the job
Provides 4 benefits
- unlimited medical benefits
- survivor income and funeral up to 5k
- disability benefits
- rehab
Only available for full time employees
Places to buy Workers Comp
1) individual insurer
2) state compensation insurance fund
3) self insuring
Exclusion from Workers Comp
exclusion of coverage if
- injured while playing sports then you only get paid for meals lodging and transportation
- injured while participating in a voluntary off duty activity or social event
- if your drunk, commiting a crime or starting a fight in th
Workers Comp statutes
1) mandatory for any employer with 1 or more employees
2) 7 day waiting period for disability payments
3) premiums must be approved by state insurance dept which is determined by the "experience" of the employer ie how many claims exist from that employer
Employer Liability Insurance
- provides coverate for common law claims
- an employee can sue their employer if workers comp is not provided
Impairment Exclusion Rider
- excludes coverage for partifular illness
- may be temporary or permanent
- eliminates pre existing condition
Service Plans for Heathcare
Service plans include PPO, HMO and BCBS
- prepaid benefit
- less choice
- less paperwork
- less out of pocked
Indemnity Healthcare plan
Basic, Major Medical
- More choice of providers
- more out of pocket expenses
- more claim forms
Medical Expense Policies
- Basic
- Major Medical
- Comprehensive major medical
Basic Plan
Individual plan that reimburses all or some of the healthcare expense.
The insured does not have to pay a deductible but the services are limited
AKA first dollar coverage
3 Benefits:
1) Daily room and board - designed to reimburse room and board. There i
Major Medical
Protects against catastrophic losses with much higher benefits
- High coverage limitations
- unlimited lifetime benefits
- deductibles are front end (must be satisfied before you recieve any coverage)
- After the deductible has been satisfied, the patient
Stop Loss
it limits the amount of out of pocket expenses to the insured
- adds to price of premium
- certain benefits are limited like certain types of rehab (alcohol)
- can lower the price of a policy by increasing the stop loss amount
Comprehensive Major Medical Plan
Combines a basic plan and major medical plan.
Corridor Deductible
the deductible between a basic and major medical policy
Supplemental Major Medical
elimates the insured from having to pay any deductible.
Coverage for dependent Children
- must notify insurance company w in 31 days of birth and pay additional premium
- coverage usually ends at 19 unless kid is a full time student
- if child has multiple coverage through both parents, then parent whos birthday comes first in the calendar y
Taxation of Medical Plans
- premiums are not deductible
- benefits are not taxable
- if expenses exceed 7.5% of adjusted gross income the excess is deductible
- employer paid group premiums are deduction to the employer
Scheduled Dental Insurance
- a basic plan
- generally have no deductible or co payments and include first dollare coverage.
- contains categoris of treatments with maximum benefits
Non Scheduled Debtal Insurance
- a comprehensive plan
- incude deductible and co pay
- certain prodcedurs are reimbursed at 80% (like fillings and oral surgery) and some are at 50% (like crowns, orthodontics, facial reconstruction
Healthcare cost containment methods
1) preventative care
2) Hospital outpatient services (pre-admission testing )
3) alternatives to hospital confinement (hostpice or nursing facility)
4) case managment
Group Health Insurance
- a more liberal underwriting process
- probationary period is only applied to those that enroll in the group after the policy effective date
Experience Rating
When the actual experience of the group determines premiums
Community Rateing
When a group is small, the insurance company would use the experience from their community
Small Employer Medical Expese Plan
2 - 50 employees
- must offer medical expense coverage to all eligible employee
-preexisting conditions cannot be excluded for more than 1 year
- employer must offer at least 2 medical plan options
Modified Fully Insured Plan
Offer employer payment options to lower group plan costs
-premium delay arrangement - employer can delay payment beyond 30 day grace period for 60-90 days
- Reserve Reduction arrangement - After 1 year employer can retain amount of premium equal to claim
Partially self funded healthcare plans
when an employer bears a portion or some of all of claim risk
1) Stop loss coverage - plan is self funded by employer up to a point and insurer assumes losses beyond that. For large empoloyers only
2) ASO Contracts - employer pays 100% of claims buts hire
Fully Employer Funded healthcare plan
Employer makes regular contributions into fund
- 1 plan no need for multiple state plans
Conditions for fully employer funded healthcare
-accurate claim predictability, large employee base
- employer has ability manage claims
- employer can hire 3rd party admin services
- employer ability to pay higher than expected claims
Which plans are suitabile for self funding
short term disability, dental, vision, lefal expense and basic medical plans (all small payouts)
Master Contract
the contract given to the policyowner of a group contact and verifies that coverage is provided
ERISA
Employee retirement income security act
- its a federal law to protect the interests of the participants and beneficiaries regarding their pension, group insurance and welfare benefit plan
- There's an appointed fiduciary that manages benefit plans, must
Family and Medical Leave Act of 1993
Allows an employee to take an unpaid leave of absence from their employment in the event they are required to provide care for
- spause, family member or parent
- new child, adoption or foster care
- themselves if they get sick and are unable to perform t
Family Leave Act of 1993 stipulations
- Applies to employers who employ 50 or more employees within 75 mils of the workplace
- must have been employed for at leas 12 months and accumulated 1250 hrs of employment during last 12 months
- applies to private and state and federal employees
Age Discrimination in Employment Act (ADEA)
Federal act affecting employers with 20 + employees
- Affects employees age 40+
- compulsory retirement is not allowed
- workplace benefits must continue beyond 65 although some reduction may occur
- Medical benefits may not be reduces
Civil Rights / Pregnancy Discrimination Act
Fed act affecting employers with 15+employees
- pregnancies get same medical coverage as everyone else
-applies to medical plans, sick leave and disability benefits