finance 661 exam 2

what can life insurance provide for you

Provide lump-sum payments to children when they reach a specified age (endowment) Provide a retirement income, or provide an education or income for children

what did life insurance develop in the 50s

a. The National Association of Insurance Commissioners (NAIC) approved a mortality table known as the Commissioners 1958 Standard Ordinary (CSO) Mortality Table

30. What do the 100/300 amounts for bodily insurance usually stand for.

a. The first two numbers represent bodily injury liability coverage. These amounts represent thousands of dollars of coverage. First number (100) is the limit for the claims that can be paid to one person. The second number (300) is the limit for each accident. b. With this example, a driver would have a limit of $100,000 for claims that could be paid to one person in the accident. In addition, there would be $300,000 limit for all bodily injury claims for a single accident

4. What does mediation usually involve.

a. The use of a third party to settle grievances - the mediator tries to resolve a conflict between a consumer and a business through discussion and negotiation

3. What is unit pricing.

a. Uses a standard unit of measurement to compare the price of packages different sizes

21. Identify a situation where negative amortization can be created.

a. When payment amounts do not rise, but interest rates do, the amount owed can increase in months in which the mortgage payment does not cover the interest owed. This increased loan balance, called negative amortization, means the amount of the home equity is decreasing instead of increasing

17. When can renting be more advantageous than buying.

a. When you want lower short-term living costs

37. Be able to determine what part of a homeowners insurance would cover a loss when given an example.

a. Your household belongings, such as furniture, appliances, and clothing, are covered by the personal property portion of a homeowners insurance policy up to a portion of the insured value of the home. That portion may range from 55 to 75 percent.

a. The amount that your local government determines your property to be worth for tax purposes

assessed value of your home

a. People who are unable to attain automobile insurance

assigned risk pool

is another option. Some people want a home built to their specifications. Before you begin such a project, be sure you possess the necessary knowledge, money, and perseverance. When choosing a contractor to coordinate the project, consider the following:

building a home

36. What does eating a balanced diet and exercising tend to do to your risk.

reduce risk of illness

25. What kind of loan provide the home owner with tax free income and pays it back when the house is sold.

reserve mortgage

a. An organized strategy for protecting assets and people. It helps reduce financial losses caused by destructive events. A long-range planning process

risk management

are the most popular form of housing. These residences include previously owned houses, new houses, and custom-built houses. Older houses may be preferred by people who want a certain style and quality of housing.

single-family dwelling

35. What type of risk would starting a small business be considered as.

speculative risk - risk that carries chance of loss or gain

a. If you have no dependents and your spouse earns about the same or more than you do, you have simple insurance needs. This method assumes your spouse will continue to work after you die.

the DINK method

spouse makes about the same amount of money that you do and will continue working after your death

the DINK method

50. What do some say about credit life insurance policies.

the nation's biggest ripoff

39. Why do most people buy life insurance.

to protect someone who depends on them from financial losses caused by their death

29. Which one is more expensive to insure, wood or brick

wood

15. Do home improvements increase the selling price of a home.

yes

40. Is life insurance an important decision for you to make.

yes

purpose of insurance

Protection against possible financial risk

9. Be able to identify what step in the buying process someone is at in an example.

1. Pre-shopping activities - problem identification & information gathering 2. Evaluating alternatives 3. Determining purchase price 4. Post purchase activities - proper operation and maintenance

49. Understand whole life insurance and its benefits.

An insurance plan in which the policyholder pays a specified premium each year for as long as he or she lives; also called a straight life policy, cash-value life policy, or ordinary life policy.

14. What is the most important factor to consider when buying a home.

Location, location, location

what is a term insurance policy

Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20 years or up to age 70. A term insurance policy pays a benefit only if you die during the period it covers. If you stop paying the premiums, the insurance stops. Term insurance is therefore sometimes called temporary life insurance. Term insurance is a basic, "no frills" form of life insurance and is the best value for most consumers. The premiums for people in their 20s and 30s are less expensive than those for whole life insurance, discussed in the next section.

46. What are some things you should consider when buying life insurance.

You should consider a number of factors before you buy insurance, including your present and future sources of income, other savings and income protection, group life insurance, group annuities (or other pension benefits), and Social Security.

16. What function does a deed do when buying a property.

a. A deed is the document that transfers ownership of property from one to another

defective house wiring

a. A hazard that increase the likelihood of the peril of the fire

22. What is the purpose of a rate cap

a. A rate cap is the amount that the interest rate can increase or decrease during the ARM term. This limit prevents the borrower from having to pay an interest rate significantly higher than the one in the original agreement

20. What does it mean to sublet an apartment.

a. Allows you to have another person take over any rent payments and live in the rental unit

18. What are common costs that are associated with renting.

a. Annual rent payments b. Renter's insurance c. Interest lost on security deposit (amount of security deposit times after-tax savings account interest rate)

8. What is the purpose of an automobile service contract.

a. Can cover repairs not included in the manufacturer's warranty

7. What is usually the largest fixed expense of a new vehicle.

a. Depreciation - the loss in the vehicle's value do to time and use

10. What is the average mileage that your oil should be changed for your car.

a. Every 3000-5000 miles depending on recommendations for the vehicle

6. Know an example of an economic factor that can influence buying decisions.

a. Inflation, interest rates, tax rates, government regulations, and product safety

13. What does a lease do.

a. Legal document that defines the conditions of a rental

19. What is the purpose of a security deposit.

a. Money held by the landlord to cover the cost of any damages done to the rental unit during the leasing period. This amount is usually one month's rent

2. Are service contracts usually free

a. No, there is usually a fee involved to protect the buyer from high service costs resulting from damages or a loss

5. What does a limited warranty usually cover.

a. Only covers certain aspects of the product, such as parts, or requires the buyer to incur part of the process for shipping or repairs

1. What is the first phase in the buying process.

a. Preshopping activities i. Problem identification ii. Information gathering

what type of insurance is sometimes called temporary

a. Temporary insurance can be term, renewable term, convertible term, and decreasing term insurance

are individually-owned housing units in a building with several units. Individual ownership does not include the common areas, such as hallways, outside grounds, and recreational facilities. These areas are owned by the condominium association, which is run by the people who own the housing units. The condominium association oversees the management and operation of the housing complex. Condominium owners are charged a monthly fee to cover the maintenance, repairs, improvements, and insurance for the building and common areas. A condominium is not a type of building structure; it is a legal form of home ownership.

condominiums

contract condition states that an agreement is binding only if a certain event occurs.

contingency clause

a form of housing in which the units in a building are owned by a nonprofit organization. The shareholders purchase stock to obtain the right to live in a unit in the building. While the residents do not own the units, they have the legal right to occupy a unit for as long as they own stock in the cooperative association. The title for the property belongs to the co-op. This ownership arrangement is different from condominiums, in which residents own the individual living unit.

cooperative housing

similar to multiple of income method, but uses the insurance agent's use of thumb that a typical family will need approximately 70% of your salary for seven years before they adjust to the financial consequences of you death. Multiple current gross income by 7 and .7

easy method

38. What is the #1 natural disaster in the U.S

floods

34. What are losses due to negligence defined as.

liability risks

are housing units that are fully or partially assembled in a factory and then moved to the living site. There are two basic types of manufactured homes. One type is the prefabricated home, with components built in a factory and then assembled at the housing site. With this type of housing, mass production can keep building costs lower.

manufactured houses

a second type of manufactured home. Since very few mobile homes are moved from their original sites, the term is not completely accurate. These housing units are typically less than 1,000 square feet; however, they usually offer many features of a conventional house—fully equipped kitchens, fireplaces, cathedral ceilings, and whirlpool baths. The site for a mobile home may be either purchased or leased in a development specifically designed for such housing units.

mobile homes

annual income is used as sole factor. Identifies your insurance needs as a range between 5 and 8 times your income. Excludes factors such as family size, current assets, living expenses, and expected additional sources of income

multiple of income method

a residence with more than one living unit, include duplexes and townhouses. A duplex is a building that contains two separate homes. A townhouse contains two, four, or six single-family living units.

multiunit dwellings

41. Can most insurance companies determine how long a particular person will live.

no

Insurance experts have estimated that extra costs of up to $10,000 a year may be required to replace the services of a homemaker in a family with small children. These extra costs may include the cost of a housekeeper, child care, more meals out, transportation, laundry services, and so on. They do not include the lost potential earnings of the surviving spouse, who often must take time away from the job to care for the family. To estimate how much life insurance a homemaker should carry, multiply the number of years before the youngest child reaches 18 by $100,000

nonworking spouse method

a. The cause of a possible loss

peril