Chartered Life Underwriter (CLU) Fundamentals of Insurance Planning Syllabus

What is subrogation, and what two purposes does it serve?

Subrogation allows the insurer, after paying a claim, to take over the insured's right to recover from the negligent third party who caused the loss. It (1) prevents the insured from collecting twice (supporting indemnity) and (2) holds the wrongdoer responsible.

What is the difference between actual cash value (ACV) and replacement cost?

ACV = replacement cost minus depreciation (the depreciated value of the property). Replacement cost pays the full cost to repair/replace with like kind and quality without deduction for depreciation.

In agency law, what is the difference between express, implied, and apparent authority?

Express authority is explicitly granted (orally or in writing) in the agency contract. Implied authority is not stated but is needed to carry out express duties. Apparent authority is authority a third party reasonably believes the agent has based on the principal's conduct, even if not actually granted.

What is the "waiver and estoppel" concept as it applies to insurance agents?

A waiver is the voluntary relinquishment of a known right by the insurer (often via the agent). Estoppel prevents the insurer from later denying a fact it represented when the insured relied on it. An agent's actions can bind the insurer through these doctrines.

Distinguish the legal status of an insurance agent from that of a broker.

An agent legally represents the insurer (principal) and can bind coverage. A broker legally represents the insured/applicant and solicits coverage from insurers but generally cannot bind the insurer.

What are the major coverage sections (Section I and Section II) of a Homeowners policy?

Section I covers property: Coverage A (dwelling), B (other structures), C (personal property), and D (loss of use). Section II covers liability: Coverage E (personal liability) and Coverage F (medical payments to others).

Compare the HO-3 and HO-5 homeowners forms in terms of how they cover the dwelling and personal property.

HO-3 covers the dwelling and other structures on an open-perils (all-risk) basis but personal property on a named-perils basis. HO-5 covers both the dwelling and personal property on an open-perils basis (broadest standard form).

How does the homeowners coinsurance (80% replacement-cost) requirement affect partial loss payments?

If the dwelling is insured for at least 80% of its replacement cost, partial losses are paid at full replacement cost (up to limits). If insured for less than 80%, the insurer pays the greater of ACV or a proportionate (penalty) amount based on (amount carried / amount required).

What perils are typically excluded under a standard homeowners policy and require separate coverage?

Flood (covered by the NFIP), earthquake (separate endorsement/policy), war, nuclear hazard, intentional acts, and ordinance-or-law and government action are excluded. Flood and earthquake are the most commonly needed separate coverages.

What are the main coverage parts of the Personal Auto Policy (PAP)?

Part A: Liability (bodily injury and property damage). Part B: Medical payments. Part C: Uninsured/underinsured motorists. Part D: Coverage for damage to your auto (collision and other-than-collision/comprehensive).

What is the difference between "collision" and "other than collision (comprehensive)" coverage in a PAP?

Collision covers damage to the insured's auto from impact with another vehicle or object or from overturning. Other-than-collision (comprehensive) covers losses such as fire, theft, vandalism, falling objects, hail, flood, and animal collisions.

What does uninsured/underinsured motorists (UM/UIM) coverage provide?

UM pays for bodily injury (and in some states property damage) caused by a driver who has no liability insurance or is a hit-and-run. UIM pays when the at-fault driver's liability limits are insufficient to cover the insured's injuries.

What does a notation like split limits of 100/300/50 mean on an auto liability policy?

$100,000 bodily injury liability per person, $300,000 bodily injury liability per accident (all persons), and $50,000 property damage liability per accident.

What is a personal umbrella liability policy, and what does it require of underlying coverage?

A personal umbrella provides excess liability limits (typically $1 million or more) above the insured's underlying auto and homeowners liability, and it broadens coverage for some claims those policies exclude. It requires specified minimum underlying limits (e.g., 250/500/100 auto and $300,000 home).

What is the "self-insured retention (SIR)" in a personal umbrella policy?

The SIR is the amount the insured must pay out of pocket for a loss covered by the umbrella but NOT covered by any underlying policy. It functions like a deductible for gaps the umbrella fills directly (often $250–$1,000).

How does professional liability (errors and omissions / malpractice) insurance differ from general personal liability coverage?

Professional liability covers economic harm arising from a professional's negligent acts, errors, or omissions in rendering professional services. Personal liability (homeowners/umbrella) covers bodily injury and property damage from non-professional, personal activities and typically excludes business/professional acts.

What is the difference between an "occurrence" and a "claims-made" liability policy?

An occurrence policy covers claims arising from events that happen during the policy period regardless of when the claim is filed. A claims-made policy covers only claims first made during the policy period (subject to a retroactive date), and often needs tail coverage when terminated.

At what age can a worker claim Social Security retirement benefits, and what is the effect of claiming early versus delaying?

Reduced retirement benefits can begin at 62; full retirement age (FRA) is 66–67 depending on birth year. Claiming before FRA permanently reduces benefits; delaying past FRA earns delayed retirement credits (about 8% per year) up to age 70.

What is the Social Security retirement earnings test before full retirement age?

Before FRA, benefits are reduced $1 for every $2 earned above an annual exempt amount. In the year FRA is reached, $1 is withheld for every $3 over a higher limit until the month of FRA. After FRA, there is no earnings test.

Who can receive Social Security survivor benefits, and what is the lump-sum death benefit?

Eligible survivors include a surviving spouse (reduced as early as 60, or 50 if disabled), a spouse of any age caring for the deceased's child under 16, dependent children, and sometimes dependent parents. A one-time lump-sum death payment of $255 is paid to an eligible spouse or child.

What are the requirements to qualify for Social Security Disability Insurance (SSDI) benefits?

The worker must be fully insured (and have recent work credits), have a medically determinable physical or mental impairment expected to last at least 12 months or result in death, and be unable to engage in substantial gainful activity (SGA). A 5-month waiting period applies before benefits begin.

At what ages and conditions does Medicare eligibility begin, and what are its parts?

Medicare begins at 65, or earlier after 24 months of SSDI (immediate for ALS/ESRD). Part A = hospital insurance, Part B = medical insurance, Part C = Medicare Advantage, Part D = prescription drugs. Medigap policies cover gaps in A and B.

How does SSDI integrate with Medicare?

An SSDI recipient generally becomes entitled to Medicare after receiving disability benefits for 24 months (the waiting period). Exceptions with no waiting period are ALS (Lou Gehrig's disease) and end-stage renal disease (ESRD).

What are the basic objectives and benefit categories of workers compensation?

Workers compensation provides no-fault benefits for work-related injury or illness: medical expenses, disability income (temporary/permanent, total/partial), rehabilitation, and death/survivor benefits. In exchange, the employee generally gives up the right to sue the employer (exclusive remedy).

What is the "exclusive remedy" doctrine in workers compensation?

Workers compensation is the sole/exclusive remedy for a covered work-related injury: the employee receives statutory no-fault benefits but generally cannot also sue the employer in tort for negligence.

What are the key features of state unemployment insurance?

Unemployment insurance provides temporary weekly income to workers who lose jobs through no fault of their own, are able and available to work, and are actively seeking work. It is funded primarily by employer payroll taxes (FUTA/SUTA) and administered by the states.

How does Medicaid differ from Medicare, and what is its role in long-term care?

Medicaid is a joint federal-state, needs-based (means-tested) welfare program for low-income individuals, while Medicare is an age/disability-based entitlement. Medicaid is the largest payer of nursing home/long-term custodial care, subject to income/asset limits and a look-back period for asset transfers.

What is the Medicaid "look-back period" and resulting penalty for long-term care eligibility?

Medicaid reviews asset transfers made during the 60 months (5 years) before application. Uncompensated transfers create a penalty period of ineligibility, calculated by dividing the transferred amount by the average monthly cost of nursing home care.

List the steps of the personal financial planning process (CFP/CLU framework).

1) Establish and define the client relationship/scope, 2) Gather client data and determine goals, 3) Analyze and evaluate the client's financial status, 4) Develop and present recommendations, 5) Implement the recommendations, and 6) Monitor and review the plan.

What are the core principles in The American College's (and CFP Board's) Code of Ethics for financial advisors?

Core ethical principles include integrity, objectivity, competence (and diligence), fairness, confidentiality, professionalism, and acting in the client's best interest (the fiduciary duty).

What is the difference between a fiduciary (best-interest) standard and a suitability standard of conduct?

A fiduciary standard requires the advisor to act in the client's best interest, putting the client's interests ahead of the advisor's. A suitability standard only requires that a recommendation be suitable/appropriate for the client, a lower bar that permits choices not strictly optimal for the client.

How is the business of insurance primarily regulated in the United States, and what law affirmed this?

Insurance is primarily regulated at the state level by state insurance departments/commissioners. The McCarran-Ferguson Act of 1945 affirmed that state regulation and taxation of insurance is in the public interest and largely exempts insurance from federal regulation where states regulate it.

What is the role of the NAIC in insurance regulation?

The National Association of Insurance Commissioners (NAIC) is the coordinating body of state insurance commissioners. It has no direct regulatory authority but develops model laws, regulations, and solvency standards to promote uniformity among the states.