AccFP 102

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CFP2011
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62864
Filename:
AccFP 102
Updated:
2011-02-18 19:48:33
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Insurance and Employee Benefits Planning
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  1. Adverse Selection
    The increased tendency of higher-than-average risks (people who need insurance the most) purchasing or renewing insurance policies. People with the highest risk of loss will also be the most likely to purchase insurance.
  2. Aleatory contract
    A characteristic of insurance meaning that monetary values exchanged by each party in an insurance agreement are unequal.
  3. Apparent authority
    The insured is led to believe that the agent has authority, either express or implied, where no such authority actually exists.
  4. Particular risk
    Personal risk that involves a possible loss for an individual or a small group.
  5. Blackout period
    The period of time beginning when Social Security benefits to the surviving spouse are discontinued (usually when the last child reaches age 16) and ending when the spouse begins to receive Social Security retirement benefits at age 60 or later.
  6. Peril
    The proximate, or actual, cause of a financail loss.
  7. Pure risk
    A risk in which the results are either a loss or no loss at all.
  8. Risk
    The chance of loss, possibilityof loss, uncertainty, or a variation of actual form expected results.
  9. Risk avoidance
    The avoidance of any chance of loss.
  10. Dynamic risk
    A risk that results from changes in society or the economy (e.g., inflation)
  11. Express authority
    The actual authority an insurance company gives representatives (agents) via the agent's written contract.
  12. Financial needs approach
    Evaluates the income replacement needs of one's survivors in the event of untimely death.
  13. Fundamental risk
    An impersonal risk that involves a possible loss for a large group.
  14. 3 categories of hazards
    • -Physical hazards, build in a flood zone
    • -Moral hazards, dishonesty of emplyees
    • -Morale hazards, failure to lock doors, increasing the probablity of theft
  15. Hazard
    A condition that creates or increases the likelihood of a loss, (or peril) occurring.
  16. Human life value approach
    Uses projected future earnings as the basis for measuring life insurance needs.
  17. Implied authority
    The authority that the public reasonably percieves the agent to possess, even without express authority.
  18. Law of large numbers
    The chance that predicted results will reflect true results increases as the number of exposures increases.
  19. Mutual insurance companies
    Owned by policyowners and distrubutes profit in the form of policy dividends.
  20. Negligence
    Tort caused by acting without reasonable care.
  21. Risk transfer
    Shifting the probability of loss to another party, such as an insurance company.
  22. Speculative risk
    A risk where a potential for profit as well as loss or no loss exists.
  23. Static risk
    A risk dependent on factors other than a change in society or the economy (e.g., natural disaster)
  24. Strict and absolute liability
    Liability resulting from law; strict liability allows for defense, and absolute liability does not.
  25. Subrogation clause
    States that the insured cannot indemnify oneself from both the insurance company and a negligent third party for the same claim.
  26. Tort
    Private wrong; an infringement on the rights of another.
  27. Unilateral contract
    Only one party, the insurer, agrees to a legally enforceable promise.
  28. Vicarious liability
    One person may become legally liable for the torts of another (e.g., parent/child, employer/employee acting in the scope of employment)
  29. Uncertainty
    Involves an event that is not certain to occuror not reliable with respect to a predictable outcome.
  30. Self-insurance
    Involves insuring individuals or entities by setting aside money to cover potential future losses rather then purchasing an insurance policy.
  31. 5 steps in the risk management process:
    • 1. Clarify objectives
    • 2. Identify the risk
    • 3. Measure the risk
    • 4. Manage the risk
    • 5. Monitor the risk
  32. Social insurance
    Manditory insurance administered by the government, with benefits mandated by law. Its purpose is to protect people from large fundamental risks. Examples: Social Security, Medicare, Medicaid, workers' compensation
  33. Public insurance
    Designed to enhance public trust in financial institutions. Usually mandatory & administered by the government. Examples: FDIC, PBGC, SIPC.
  34. Private insurance
    Voluntary insurance marketied by private companies. Examples: Life and health insurance, property insurance, and liability insurance.
  35. Collateral source rule
    Damages assessed against a negligent party should not be reduced simply because the injured party also has insurance protecting against the specific peril.
  36. Contracts of utmost good faith
    Both parties of the contract must disclose all facts truthfully or the contract may either be reformed or rescinded.
  37. Defenses to negligence
    • Assumption of risk
    • Contributory negligence
    • Comparative negligence
  38. Assumption of risk
    Applies when the victim fully understood and recognized the dangers that were involved in an activity and voluntary chose to proceed anyway. Fans at a baseball game assume the risk of being hit by a foul ball.
  39. Contributory negligence
    A person cannot recover damages if his own negligence contributed in any way to his injuries. This rule sometimes causes a harsh result. Even if the injured driver is 1% at fault, he cannot recover anything from the other driver.
  40. Comparative negligence
    Damages are adjusted to reflect the extent to which the injured party's own negligence contributed to his injuries. i.e. If an injured party suffers 100k in damages, but was 40% at fault, the damages would be reduced to 60k
  41. Special damages
    Damages designed to compensate the injured person for measurable losses, such as doctor bills and automobile repairs.
  42. General damages
    To compensate the injured party for intangible losses, such as pain and suffering, that cannot be measured in dollars and cents.
  43. Punitive damages
    Damages which are not designed to compensate the victim, but to punish the wrongdoer. Punitive damages are typically imposed when the wrongdoer acted intentionally or in a way that recklessly disregarded the rights of others.
  44. Spread or administrative fee
    The indexed-linked interest for some EIA's is determined by subtracting a percentage from any gain in the index. This percentage is sometimes referred to as the spread or admin fee and can range as high as 3%.
  45. Participation rate
    Determines how much of the increase in the value of the underlying index will be used to compute the interest rate that is credited to the owner.
  46. Interest rate caps
    Some EIA's establish a maximum rate of interest that the annuity can earn. Even if the appropriate index earned 8%, but the interest rate cap was only 6%. 6% is what the EIA would be credited.
  47. High water mark
    This indexing method credits index-linked interest on the basis of any increase in index value from the index level at the beginning of the annuity's term to the highest index value at various points during the annuity's term, usually an annual anniversary from when the owner first purchased the annuity.
  48. One-year term insurance option
    (Fifth dividend option)
    Dividends are used to purchase one-year term insurance equal to the policy's current cash value.
  49. Ways of Risk retention
    Deductibles, coinsurance, self-insurance
  50. Elements of an Insurance Contract
    Offer & Acceptance, Consideration, Legal object, Legal capacity, Legal form
  51. Modified life insurance
    Life Insurance policy whereby premiums are lower for the 1st 3-5 years, then increase
  52. Universal life insurance - A
    Life Insurance policy whereby it has flexible premiums, adjustable death benefit (face amount of the policy)
  53. Universal life insurance - B
    Life Insurance policy whereby it has flexible premiums, adjustable death benefit (face amount of the policy + cash value)

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