Exam 3 Part A Flashcards

1
Q

What if an insured is covered for a loss under two or more policies?

A
  • Possibility of recovering more than the loss itself
  • Creates a moral hazard
  • Profit from insurance
  • Violates Indemnity
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2
Q

Policy Provisions

A
  • Clauses provide allocating rules to split payment of losses among various insured
  • Maximum indemnification is usually at 100% of the loss
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3
Q

Primary Excess Rate

A
  • Two Policies cover the same loss
  • A is primary, and B is secondary
  • A covers 100% of loss up to the FA of A
  • B then covers the rest of the loss up to the FA of B
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4
Q

Pro Rata Method

A
  • Face Amount, bases calculation on Face Amount
  • Ratio of each Face Value of policy divided by the total amount of insurance in force on the property
  • FAa / (FA(a)+FA(b))
  • FA b/ (FA(a)+FA(b))
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5
Q

Limits of Liability

A
  • Loss occurs -ask this questions
    “What would this policy pay if it was the only one?
    -LOL uses the amount that would be paid by a particular insurer if they were the only policy covering the loss as its basis
  • LOL(a) / (LOL(a) + LOL(b))
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6
Q

Employee Benefits

A
  • Any type of compensation other than direct current salary of wages
  • Total compensation = current wages (cash) + value of EE benefits
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7
Q

Why Employee Benefits Are So Important

A
  • Spend high $ on EE benefits approximately - 40% of payroll

- Rate of increase is high - growing much faster than cash wages (Labor Strife - SEPTA)

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8
Q

Why Do Firms Offer Employee Benefits

A
  • Attract and retain capable EEs
  • Tax advantages
  • Productivity and better EE relations
  • ER can take advantage of group insurance
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9
Q

Benefit Financing

A
  • Non Contributory
  • Contributory
  • Voluntary
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10
Q

Non Contributory

A
  • ER pays full cost of the plan
  • EE is covered without making a financial contribution
  • All eligible EEs must be covered
  • Eligibility = participation
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11
Q

Contributory

A
  • ER and EE share in the cost of the plan

- For an eligible EE to become a participant they must make a financial contribution

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12
Q

Voluntary

A
  • EE pays entire cost of the insurance plan
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13
Q

Income Taxes

A
  • ER can deduct the cost of EE benefits as an ordinary business expense (same as salary)
  • The EE is sometimes not taxed on the value of their ER provided benefits
  • Method is to compensate an EE tax free
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14
Q

Disability Insurance

A
  • Benefit- monthly income payments
  • ER pays full cost
  • Premium is not taxable to EE
  • Benefit is taxable to EE if they become disabled
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15
Q

Disability Insurance (Employee Pays Some or All of Cost

A
  • Finance through a pretax salary reduction plan

- Benefit will be taxable to the EE if they become disabled

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16
Q

Disability Insurance (EE Finances With After Tax Dollars)

A
  • Income benefits is tax free to the EE if disabled