Equation Supplement Exam 2 Fin 3400

Under pure comparative negligence, how much can a plaintiff recover?

Total damages multiplied by (1 minus the plaintiff’s percentage of fault).

A plaintiff is 48% at fault for a $100,000 loss under pure comparative negligence. Recovery?

$52,000: $100,000 × 52%.

A plaintiff is 48% at fault for a $100,000 loss under contributory negligence. Recovery?

$0 from the other negligent party because any plaintiff negligence bars recovery.

Under a modified comparative negligence 50% bar rule, what happens at exactly 50% plaintiff fault?

Recovery is barred at 50% or more plaintiff negligence under the 50% bar rule.

Under modified comparative negligence with a 51% bar rule, when is plaintiff recovery barred?

When the plaintiff is more than 50% at fault (51% or greater).

What distinguishes contributory negligence from pure comparative negligence?

Contributory can bar recovery for any plaintiff fault; pure comparative reduces recovery proportionately.

What four elements must be proved for negligence?

Duty of reasonable care; breach of duty; actual injury; proximate causal connection.

What are the three conditions highlighted for res ipsa loquitur?

Event normally requires negligence; defendant controlled instrumentality; injured party did not contribute.

Which doctrine holds an employer liable for employee negligence during employment?

Respondeat superior.

What is the difference between joint life and joint-and-survivor annuities?

Joint life ends at first death; joint-and-survivor continues income to surviving annuitant.

What is the annuity exclusion ratio formula?

Investment in the contract ÷ expected total annuity payments.

An annuity costs $45,000 and pays $500 monthly for 15 expected years. Exclusion ratio?

50%: $45,000 ÷ ($500 × 12 × 15) = 0.50.

An immediate annuity costs $200,000 and pays $1,500 monthly for 20 expected years. Exclusion ratio?

55.56%: $200,000 ÷ ($1,500 × 12 × 20).

What does the annuity exclusion ratio indicate?

The fraction of each annuity payment treated as a tax-free return of investment.

What is the annuity surrender charge?

A fee for terminating or withdrawing from an annuity during its surrender-charge period.

What is a longevity annuity?

Deferred annuity designed to begin payments at an advanced age, such as 85.

If the annuitant dies during deferred annuity accumulation, what may beneficiary receive?

Typically cash value or premiums paid, subject to contract terms.

Does selecting a different annuity payout option affect monthly income amount?

Yes. Expected payout duration and guarantees can change the monthly payment.

What is second-to-die or survivorship life insurance?

Life insurance covering multiple insureds that pays at death of the last surviving insured.

Which life insurance type is suitable for covering a declining mortgage balance?

Decreasing term life insurance.

What is convertible term life insurance?

Term coverage that can be changed to qualifying permanent insurance without new evidence of insurability under policy terms.

Does a whole-life death benefit normally equal face value plus accumulated cash value?

No. Generally face amount less outstanding policy loans; cash value is not added.

Which life insurance type typically has no cash value?

Term life insurance.

When might ordinary whole life be appropriate?

When lifetime protection and cash value accumulation are desired.

Why might universal life insurance illustrations be misleading?

Projected interest/return rates may not be guaranteed; performance can differ from illustrations.

What two types of expenses are typically charged against universal life values?

Cost of insurance/mortality charges and administrative expenses.

Which IRA generally offers a possible upfront income tax deduction?

Traditional IRA, subject to income and employer-plan rules.

Which IRA generally has after-tax contributions and qualified tax-free withdrawals?

Roth IRA.

If your tax rate is lower now than expected in retirement, which IRA may be preferable?

Roth IRA, because qualified withdrawals are not taxed at the higher expected future rate.

What is the general early withdrawal age threshold for IRA penalty rules?

Age 59½; early distributions may incur an additional 10% tax unless an exception applies.

What conditions commonly make Roth IRA earnings withdrawals qualified?

Generally age 59½ or another qualifying condition plus satisfaction of the five-tax-year rule.

According to the 2026 IRA practice key, what is the maximum contribution for two spouses both over 50?

$17,200 total: ($7,500 + $1,100 catch-up) × 2, per supplied answer key.

Two spouses each make a deductible $5,500 traditional IRA contribution at a 30% marginal tax rate. Savings?

$3,300: 2 × $5,500 × 30%.

Why is a high-growth investment often attractive inside a Roth IRA?

Qualified investment growth and withdrawals can be tax-free.

Where can an IRA be established, according to the review?

Banks, mutual fund firms, brokerage firms, and insurers.

Which health plan commonly requires a primary care gatekeeper and specialist referrals?

HMO (health maintenance organization).

Traditionally, what did Blue Cross and Blue Shield cover respectively?

Blue Cross: hospital care; Blue Shield: physician/surgeon services.

What does HSA stand for?

Health Savings Account.

What two components are combined in a consumer-directed health plan?

A high-deductible health plan (HDHP) and a Health Savings Account (HSA).

Is a health insurance calendar-year deductible the same as a per-claim straight deductible?

No. Covered expenses accumulate toward an annual deductible; a straight deductible applies to each loss.

What is coordination of benefits used for?

Determines which group health plan is primary when more than one policy may cover a claim.

What is the purpose of a policy exclusion?

Removes specified perils, property or losses that are uninsurable, atypical or unusually hazardous.

What can prevent an insurer from enforcing a right it repeatedly waived?

Estoppel, when the insured relied on the insurer’s prior conduct.

An applicant promises to install a pool fence and makes that promise part of the policy. What is it?

A warranty.

What are three retirement ages named in the pension review?

Early retirement, normal retirement, and deferred retirement ages.

What generally happens to defined-benefit pension income at early vs. deferred retirement?

Early retirement typically reduces benefit; deferred retirement may increase it, subject to plan rules.

What is PBGC’s function?

Pension Benefit Guaranty Corporation protects certain vested private defined-benefit pensions, subject to limits.

If insurer A carries $300,000 and B $200,000, how do they share a $100,000 loss pro rata?

A pays $60,000 (60%); B pays $40,000 (40%).

What is the property coinsurance penalty equation?

(Coverage carried ÷ coverage required) × loss; insurer payment capped at covered loss and policy limit.