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102 Cards in this Set
- Front
- Back
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universal life |
flexibility in premium AND death benefit transparency: you can see all the charges |
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universal death benefit options |
Option A: level death benefit Option B: death benefit can increase with cash value |
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VARIABLE universal life |
flexibility with premium and death benefit DIFFERENCE: the policy owner makes investment choice and decision from a menu of funds Guaranteed death benefit, but no guaranteed cash value |
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more likely than death during working years; and more devastating financially than breadwinner's death |
disability risk |
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ratio of people being permanently disabled before 65 |
1 in 10 |
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2 problems associated with disability risk |
adverse selection and moral hazard |
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sick leave plans |
pays full income starting from first day of sickness/disability |
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paid time-off programs |
sick-leave, paid vacation days holidays personal days |
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probationary period for sick days |
1-3 months |
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sick-leave general |
- generally limited to full time employees
- employees can earn a certain amount of sick leave every so often up to some maximum - if you leave before claiming you get dollar value of time away. |
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types of disability plans |
short term long term |
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short term disability coverage |
- usually less than 6 months - insured or self-insured |
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long- term coverage |
waiting period payout period can be rest of life (or 65) insured or self-insured |
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disability insurance |
moral hazard concern
waiting period less than full wage replacement eligibility requirement- short term less stringent than long term |
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common exclusions for both long term and short term disability insurance (4) |
- self-inflicted wounds - not under physician's care - injury prior to being covered - employee making money at another job |
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common exclusions for LTDI (5) |
- preexisting medical conditions - alcoholism or drug addiction (limited benefit period) - mental disease - participation in assault or felony - war |
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short term insurance definition |
- the ability to perform each and every duty of regular occupation |
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long term insurance definition |
dual definition:- - first, like short-term definition: 2 years provide partial (+ work) disability benefits |
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why are disability benefits never full salary |
- moral hazard - favorable tax increment - expenses may be less there is a weekly or monthly dollar maximum |
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elimination period |
time deductible: usually 1-7 days purpose is to reduce costs and discourage unwarranted absences applies to each disability |
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LTDI benefit period |
elimination period is 3-6 months (corresponds to STDI coverage period) duration can vary from 2 years til a lifetime benefit duration may vary by age: shorter period for older workers (ok under ADEA) |
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coordination with other benefits |
most group disability plans are integrated with: |
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coverage for short term insurance |
- most cover just non-occupational injuries and use worker's compensation for the other |
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short term and long term coverage is based on |
training, education, and experience |
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payout for long term disability |
percentage of income with a maximum limit |
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why do you not get full percentage of salary? (3) |
- prevent moral hazard - favorable tax increment - expenses may be less |
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elimination period for STDI |
1-7 days |
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purposes for the elimination period of STDI |
- reduce costs - discourage unwarranted absences |
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Elimination Period for LTDI |
3-6 months |
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Duration of a LTDI |
2 years to a lifetime |
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can a benefit duration variation by age? Is it ADEA compliant? |
YES and YES! it is shorter for older workers and it is ok under the Age Discrimination Employment Act |
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disability plans are integrated with (3) |
- worker's compensation - social Security - Pension Plan |
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can you coordinate disability plans with individual plans? |
NO! its illegal! |
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Federal Taxation of Disability of the employER's contributions |
are deductible |
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Federal Taxation of Disability for the employEE are used with pre or post tax dollars? |
AFTER-tax dollars (post) |
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are employers contributions taxable income to the employee? |
they are NOT taxable |
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Disability Income benefits and taxes: Portion based on employER contributions |
Taxable |
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Disability income benefits and taxes: portion based on employEE contributions |
NOT taxable |
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Retirement plans minimum service requirement |
no minimum per say; however the longest you can make them wait is ONE YEAR |
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caveat for minimum service requirement for retirement |
TWO YEARS if there is immediate vesting |
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minimum age requirement for participation in retirement plans |
no minimum age; however 21 is the highest age it can be |
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retirement plans must pass two types of tests: |
one of two COVERAGE TESTS AND one of two PARTICIPATION TESTS |
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types of Coverage tests (2) |
Ratio Test and percentage test |
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formula for the ratio percentage test |
lowly paid % covered DIVIDED BY highly paid covered >= 70% |
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Participation Tests |
- at least 50 employees covered (eligible and choose to participate) - at least 40% of eligible employees |
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who may be excluded from coverage tests? (4) |
- employees not meeting age - employees not meeting service - employees included in a collective bargaining agreement - employees who are non-resident aliens |
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when are you considered a highly compensated employee? |
when you are one of two types of people: - at least 5% owner - receive compensation greater than 120,000 |
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defined BENEFIT plans vesting |
5 year cliff or 3 to 7 year vesting |
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most common vesting for defined BENEFIT plans |
5 year cliff |
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why are benefits reduced if you retire early? (4) |
- benefit accrual period is shorter - forgone interest earnings - longer expectancy at retirement as oppose to someone who didn't - no chance of death before retirement |
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benefits of late retirement |
benefits will continue to accrue until they are maxed out |
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are there more defined contriubtion plans or more defined benefit plans currently? |
defined contribution plans |
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what is the ratio of defined benefit plans to contribution plans |
1 to 10 NOTE: same ratio of people that will be permanently disabled before 65 |
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why are DB plans so unpopular? (7) |
- DB plans are more expensive - harder to administer - put more risk on the employer - increases cost pressure/competition - employees switch jobs more often - decline in collective bargaining/unions - more part-time leased employees |
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does the benefit have to be related to the compensation level? by how much? |
No, there does not need to be related to the compensation level |
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defined benefits are insured by whom? |
PBGC- pension benefit guarantee corportation |
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defined benefit plan favors which type of employee |
those that enter in at a later age |
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reasonable income replacement ratio |
60-80% |
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two defined benefit formulas |
- flat benefit formulas - unit benefit formula |
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flat benefit formulas (2) |
flat amount flat percentage |
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what is the actual flat amount per year during retirement? |
10,000 per year during retirement |
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what is the actual flat percentage |
50% of final salary |
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unit benefit is based on what criteria |
length of service |
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can unit benefit vary with compensation? |
trick question; it may or may not |
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past service yearly benefit formula: |
yearly benefit = (2%)(years of service)(final salary) |
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definition of an accrued benefit for defined benefit plans |
plans in which the employee is entitled to a benefit but not full benefits because they terminated before they retire (or if the employer terminated the plan) |
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rules for accrued benefit (3) |
- 3% rule - 133.33 % rule - fractional rule |
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formula for 3% rule |
(3%)(years of service)($ amount of benefit) |
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133.33% rule |
growth rate of accrual cannot exceed 133.33% of prior year |
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exempted from the three rules (3%,133.3%, and fractional) if: (2) |
- accrued benefit is not less than surrender cash value AND - insurance is paid up, no loans are outstanding, and there is not security interest |
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formula for fractional rule |
= (retirement rate if continued to normal retirement age) x (years of actual participation DIVIDED BY years participated) |
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NOTES regarding accrual benefit |
if it mentions a minimum time necessary to work at a company==> FRACTIONAL RULE |
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vesting for a defined CONTRIBUTION plan (2) |
3 year cliff or 2 to 6 year graded vesting **NOTE: it's 5 year cliff and 3 to 7 year graded for defined BENEFIT |
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percentage of america that is currently uninsured |
18.2% |
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individual mandate for ACA |
required to maintain coverage or pay a penalty |
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til what age are you covered under your parents |
stops on the child's 26th birthday |
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where can you purchase insurance |
through employer or through insurance exchange |
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co-ops |
are private, non-profit, state-licensed health insurance carriers |
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how many co-ops are there |
23 |
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how many co-ops lost money in 2014 |
22 |
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how many co-ops have folded |
9 |
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obamacare penalty |
percentage of household income or dollar amount fee; whichever is higher |
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most popular plan under obamacare |
70% covered under the silver medal tier NOTE: the four tiers are bronze, silver, gold, platinum |
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when must businesses offer full time coverages |
when a company contains at least 50 equivalent employees (2 part time EQUALS 1 full time) |
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cadillac tax |
additional healthcare tax on some healthcare plans; going into effect in 2018 fund ACA 40% excise tax on healthcare coverage above $27,500 |
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self- funding |
- employer self insures benefit costs - employer administers the plan and bears the risk that benefit payments will exceed those expected |
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group insurance |
- employees and possibly their dependents insured under a single policy issued to the employer - insurer administers bears risk that the benefit payments exceed payouts |
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voluntary benefit plans |
- group or individual insurance provided via employer - employees pay 100% of the premium |
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group contract/master contract |
- issued to someone other than the employee (like the employer) - provides benefits to persons with specific relationship to employer/policyowner |
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experience rating |
- claims experience of group is used to adjust and set future rates |
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group underwriting |
- focuses on group risk characteristics - evidence of insurability typically not required when first eligible for coverage |
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probationary period |
- time that must pass before employee is eligible for coverage under a group benefit plan
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open enrollement |
time period when coverage under group benefit plan may be obtained with less or no evidence of insurability (sometimes offered annually) |
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noncontributory |
employER pays 100% of cost/premium |
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partly contributory |
employer and employee each pay part of cost/premium |
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fully contributory |
employEE pays 100% of cost/premium |
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ADEA |
- applies to private sector and government employees - no requirement that benefits be provided to retired employees - protection for those 40 or older |
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insurer may terminate group coverage (3) |
- non- payment of premium - required group size not maintained - required participation rate not maintained |
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employee coverage termination (4) |
- employment ends - master contract terminated - employee ceases to be eligible - employee fails to make contribution |
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group life insurance and taxation for the employer |
tax- deductible expense EXCEPT WHEN: - overall compensation is unreasonable - employer named as beneficary |
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group life insurance taxation for the employer is |
after-tax income (not deductible) payment for premiums by employer- code 79 |
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Code 79 benefits |
- premium paid by employer for first $50,000 is NOT TAXABLE INCOME to the employee - premium paid by employer for coverage above $50,000 TAXABLE INCOME |
