Risk Management and Insurance Flashcards

A self-employed client is considering ACA marketplace health insurance. What tax benefit should the counselor mention?

Answer: Self-employed individuals may deduct 100% of health insurance premiums as an above-the-line deduction

Self-employed individuals can deduct 100% of health insurance premiums as an above-the-line deduction, reducing adjusted gross income.

Which risk is typically NOT covered by standard homeowner's insurance?

Answer: Flood damage

Standard homeowner's policies exclude flood damage. It must be purchased separately through NFIP or private insurers.

A client compares two auto policies: Policy A ($250 deductible, $150/month) and Policy B ($1,000 deductible, $100/month). Over 3 years with one claim, which costs less?

Answer: Policy B

Policy A: ($150 x 36) + $250 = $5,650. Policy B: ($100 x 36) + $1,000 = $4,600. Policy B saves $1,050.

What is the coinsurance clause in a homeowner's insurance policy?

Answer: A provision requiring insurance for a minimum percentage of replacement cost to receive full claim payments

The coinsurance clause (typically 80%) requires insuring for at least 80% of replacement cost. If underinsured, claims are proportionally reduced.

A client with a family history of cancer asks about critical illness insurance. What does this policy typically provide?

Answer: A lump-sum cash payment upon diagnosis that can be used for any purpose

Critical illness insurance pays a one-time lump sum upon diagnosis of a covered condition, usable for any purpose.

When reviewing a client's insurance portfolio, what is the 'adequate but not excessive' concept designed to prevent?

Answer: Over-insuring, which wastes premium dollars that could be better allocated elsewhere

Over-insurance wastes money on unnecessary coverage, diverting funds from savings, investments, or debt repayment.