Economics & Pers Finance B - Types of Insurance

HMO

A Health Maintenance Organization, or an HMO, is a type of managed care organization that provides healthcare services from predefined doctors, hospitals, and other providers.

PPO

A Preferred Provider Organization, or a PPO, is a type of managed care organization that provides health care by doctors, hospitals, and specialists that are under contract with the insurance company and provide health care at a lower rate.

co-payment

A co-payment, or co-pay, is a set amount an insurance policy holder pays to access medical treatment.

deductible

A deductible is the amount that an insurance policy holder must pay in order to receive the benefits of the policy; after which the policy covers any medical expense over the amount of the deductible.

fee-for-service plan

A fee-for-service plan is an insurance plan that pays their share of covered medical services after treatment is provided, once the policy holder has paid the deductable, and any co-pays.

premium

A premium is the amount an individual can be expected to pay for an insurance policy.

rider

A rider is additional insurance that modifies an existing insurance policy to extend its coverage.

bodily injury liability

Bodily injury liability insures that if a policy holder causes injury to another, the injury caused will be covered.

collision insurance

Collision insurance is a level of insurance that covers the policy holder's personal vehicle.

comprehensive insurance

Comprehensive insurance is a level of insurance that covers the damage or loss of a vehicle due to fire, theft, vandalism, hail, and other causes.

liability

Liability is the state of being legally obligated or responsible.

managed care plan

Managed care plans are plans that are composed of medical professionals whose aim is to reduce the cost of medical treatment while providing a high level of health care through the subsidies of regular premiums to insurance companies.

property damage liability

Property damage liability is a level of insurance that covers any damage caused to other people's property, including their vehicle.

renters insurance

Renters insurance is insurance that protects the policy holder's belongings from lightning, windstorm or hail, vandalism or theft, damage from vehicles and aircraft, riot, glass breakage, smoke, volcanic eruption, and personal liability.

replacement cost

Replacement cost is the cost of replacing an asset using the present value of the asset to determine reimbursement.

term life insurance

Term life insurance is life insurance that offers protection for a fixed amount of time, usually 1, 5 or 10 years.

beneficiary

The beneficiary is the person named in the policy to receive the benefits in the event of death.

umbrella insurance

Umbrella insurance is an insurance policy that protects the value of the insurer's property and earnings beyond the standard limits set by their primary policies.

uninsured/underinsured motorist coverage

Uninsured/underinsured motorist insurance is insurance that protects against damage to the car or injury to persons in the car caused by a driver who are either under insured or not insured.

universal life insurance

Universal life insurance is a whole or permanent life insurance plan that takes part of the premium and invests it into a tax free account.

whole life insurance

Whole life insurance is life insurance that insures you for your whole life and is often called permanent, or straight life insurance.

Rachel just purchased a homeowners insurance policy for her new home that costs $0.43 per $100. Her home is worth $387,500. What is Rachel's annual homeowners insurance premium?

a. $1,666.25

If Jesse wants to buy a $75,000 10-year term life insurance policy, and the annual premium rate (per $1000 of face value) for his age group is $2.34, how much is Jesse's annual premium?

a. $175.50

Sherita, age 37, wants to pay no more than $750 a year in life insurance. If the annual life insurance premium rate (per $1000 of face value) is $3.96, what is the largest 15-year term policy she can buy without spending more than $750 annually?

a. $189,000

Susan is paying $0.30 per $100 on her $483,000 home in homeowners insurance annually. If her annual homeowners insurance premium is divided into twelve equal monthly installments to be included on each of her monthly mortgage payments of $2128.00, what is her total monthly payment?

a. $2,248.75

Below is the information from a brochure for Fret-No-More Auto Insurance outlining the insurance coverage options they offer. To be considered "full" coverage, an insurance plan must include one level of coverage from each category. What is the annual premium for the full-coverage insurance plan with the highest coverage limits and the lowest deductibles available from Fret-No-More?

a. $473.16

When shopping for life insurance, you should look for:

a. A company with a low premium rate and a good rating.

Eva is 29 years old and has 2 children, ages 3 and 5. She makes $48,500 a year. Eva decides to buy a $400,000 10-year term policy and then renew the policy for another ten years afterwards. To renew the policy the insurance company charges an extra 40% to her premium rate. Given the options below, assess whether Eva made a wise decision.

a. Eva would have been better off selecting the 20-year term policy.

Sally just purchased a beautiful home on a riverbank for what she thought was a very good deal. She later learned that her house was very susceptible to flood damage during the rainy season. Which of the following statements best describes the effect the location of Sally's new home will have on her homeowners insurance premium?

a. Financial loss due to flood damage is likely. Her insurance premiums will be higher than homes not on the waterfront.

Why are the premiums for a PPO health insurance plan generally more expensive than those for an HMO Health Insurance Plan?

a. PPO insurance plans offer a wider choice of primary care doctors and specialists.

Tracy was involved in an accident in which the other driver suffered severe injuries. The police determined that the accident was Tracy's fault. Tracy is fully insured through her insurance company. Which of the following components of Tracy's insurance policy will cover the injuries of the other driver?

a. bodily injury

Jade wants to buy a $200,000 term life insurance policy. She is 34 years old. Using the premium table, what is her annual premium for a 10 year policy?

b. $1,202

Gerald would like to add a dental and vision option to the health insurance plan he purchased through his employer. In addition to the 65% of Gerald's $345 monthly health insurance premium, his employer has offered to pay 50% of a $38 monthly dental premium and 75% of a $23 monthly vision premium. If Gerald adds both the dental and vision options to his insurance plan, how much will he pay each month towards health insurance?

b. $145.50

Maria, age 28, wants to pay no more than $300 a year in life insurance. What is the face value of the largest 20-year term policy she can buy without spending more than $300 annually?

b. $158,000

The health benefits Tom receives from his employer cover 43% of the total monthly premium of $345.00. How much does Tom have to pay each month?

b. $196.65

What is the difference between a co-payment and co-insurance?

b. A co-payment is a flat fee for each service, and co-insurance is based on a percentage of the costs incurred.

Jim and Stephanie just got married and are thinking about changing their health care insurance plans to be more affordable. Currently, both Jim and Stephanie are insured through their own employers. Jim's employer pays 42% of his $378 monthly premium. His insurance plan will also pay for 23% of the $345 premium for additional beneficiaries. Stephanie's employer pays 35% of her $298 monthly premium but offers to pay an extra 10% of her premium for each beneficiary Stephanie adds to her plan. Her employer would then pay 30% of the $349 premium for each additional beneficiary.

b. Stephanie should add Jim to her health care plan.

Zach is looking for a homeowners insurance policy for his new house. AAA Insurance company has offered him a plan that insures his home annually for $0.36 per $100 of value in the home. In order to make calculations easier, Thompson's Insurance lists their annual homeowners insurance premium a bit differently, at $3.63 per $1,000 of value in the home. Zach's house is worth $289,000. What should Zach be thinking as he chooses between the two insurance companies?

b. The annual premium for his house would be cheaper through AAA.

Which of the following statements is not something you should be thinking when considering changes in your auto insurance policy?

b. The premium you pay guarantees that you will never have to pay more than your deductible in the event of an accident.

You will pay substantially less for life insurance if which of the following factors is true?

b. You are in good health.

Julien was involved in an accident in which he merged into another car, damaging the front fender of the other car. Julien is fully insured through his insurance company. Which component of Julien's insurance plan will cover the damage he caused to the other car?

b. property damage

Rudy has been paying an annual homeowners insurance premium of $1,106.30 ($0.37 per $100 of value) since he first purchased his house. For the past six months, Rudy has completed some major improvements to his house to improve its overall value. If Rudy successfully adds $50,000 to the value of his house, what will his new annual homeowners insurance premium be?

c. $1,291.30

Angelo, age 40, is comparing the premium for a $125,000 whole life insurance policy he may take now and the premium for the same policy taken out at age 45. Using the table, find the difference in total premium costs over 20 years for this policy at the two age levels.

c. $12,875

Bob's employer covers 23% of his family's annual health insurance premium. The balance of the premium is deducted in equal amounts from Bob's paycheck 26 times over the calendar year. If $185.30 is withheld from each of Bob's paychecks, what is his family's annual health insurance premium?

c. $6,256.88

Mr. Henderson's annual premium of $4,668 is covered entirely by his employer along with 25% of the $9,264 premium for his wife and kids. How much of the Henderson family's annual premium is being paid for by Mr. Henderson's employer?

c. $6,984

DeShawn is 38 years old and is married with 3 children, ages 2, 4, and 6. He makes $45,000 a year and is planning to retire when he turns 60. From the following three options, DeShawn decides to buy the $900,000 20 year term policy. Given DeShawn's scenario, assess whether DeShawn made a wise decision.

c. DeShawn's current policy will cover his family for an adequate period of time at his current salary.

When shopping for life insurance, the best strategy is to:

c. Figure out how much you need, then comparison shop using the Web and other resources.

Susie is thinking about changing her auto insurance policy at Fret-No-More Auto Insurance. Her current policy includes the following options: $50/100,000 limit for bodily injury, $25,000 limit for property damage, $250 deductible for collision, and $50 deductible for comprehensive. Which of the following changes would increase Susie's limits the most without increasing her monthly premium by more than $5.00?

c. Increase coverage on bodily injury to $100/300,000 and on property damage to $50,000.

Leroux Health Insurance is considering changing the options in one of their health care plans (Plan A) based on customer feedback that prescriptions and regular visits to the doctor are too expensive for the insured individual. How can Leroux reduce the costs of regular health care without driving up the price of their health care plan?

c. Reduce the co-pay amounts but increase the annual deductible so that the monthly premium can stay the same.

Which of the following is a cost homeowners insurance does not protect?

c. Replacement costs for all contents in your home, including high cost electronics.

Tara and Levi are trying to decide between homeowners insurance policies offered by two different agencies. AAA Insurance has offered to insure their home for an annual premium of $0.38 per $100 with a $500 deductible. Thompson's Insurance has offered to insure the same home for an annual premium of $0.26 per $100 with an deductible of $1,000. The house Tara and Levi purchased is valued at $425,000. Which of the following statements accurately describes the difference between the two plans?

c. Thompson's Insurance is cheaper even if Tara and Levi experience an incident that results in severe damage or loss to their home.

Tina was involved in an accident in which she rear-ended another driver stopped at a stoplight. Tina is fully insured through her insurance company. Which of the following components of her insurance policy will cover the damages caused to Tina's car in the accident?

c. collision

Which of the following is not a factor that affects your auto insurance premiums?

c. the color of your car

Which of the following is something that will not affect your homeowners insurance premium?

c. the distance of the home from a fire station

In a fee-for-service health insurance plan with a $6,500 annual deductible, _____.

c. the insured individual must pay $6,500 in health care before the insurance company will begin to pay for his health care needs.

Cesar's annual homeowners insurance premium is $972.80. If his home is valued at $253,000, roughly how much is Cesar paying for homeowners insurance?

d. $0.38 per $100 of value

Which of the following is not a reason young drivers have higher auto insurance premiums than older drivers?

d. Accidents involving teenage drivers have required additional investigation, the cost of which is passed on to the driver in the form of a higher premium.

Which of the following will not help Robert lower his homeowners insurance premium?

d. Increase the total coverage of his home on his policy.

Which of the following is not considered one of the four basic types of auto insurance?

d. Legal Responsibility

What is no-fault insurance?

d. No-fault insurance covers medical expenses incurred after an accident, regardless of which driver caused the crash.

Which of the following is something that should not be a consideration when choosing a health care plan?

d. the coverage the insured individual and family already receive in auto insurance