Exam 1-3

By ? Insurance companies decide who will be insured by them

Underwriting

It can be difficult to evaluate the true cost of a ? At the time of purchase

Universal life insurance

Dependent children ? Will usually be covered by your health insurance policy

Up to a stated maximum age

When estimating income for the income and expense statement you should

Use gross income

the policy owner assume the investment risk with a ? Insurance policy

Variable life

A key Determinant of an individual's quality life is his or her

Wealth

The finance charges on two credit cards with the same stated annual percentage rate

Will be determined by the method used to calculate balances

A buydown refers to:

financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short periods

The three key groups in the economic environment are

government, consumers, and business.

Financial planning helps us

have flexibility to handle job loss

The primary purpose of a life insurance plan Is to help

in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.

Your income tax withholding is dependent on

income level and number of withholding allowances you have claimed

An income statement includes

income, expenses and cash surplus or deficit

Medicare is a government sponsored health care plan composed of part A and part B. Part A provides

inpatient hospital services

Stocks, bonds and mutual funds are _____.

intangible assets

the first step in buying property and liability is to develop a

inventory of exposures to loss

an individual receiving health care

is allowed to receive multiple payments from more than one insurance company for this care.

the average age of the american population

is increasing

It pays to comparison shop for insurance policies because of the

large variations in premiums and services

When the interest rate on savings is two times the interest rate on a loan it is

less expensive to borrow to make a purchase

Cash and near-cash resources are known as _____.

liquid assets

Salaries could vary across geographical areas because of

living costs

A borrower who pays his or her account balance in full each month should get a credit card with ____.

long grace period

The settlement option chosen by most policyholders is

lump sum

A budget helps in

monitoring and controlling spending

if you are laid off, your group health insurance

must be continued if you pay the premiums

If you borrow money on a single payment loan and discover that you cannot pay it back when it is due you should

negotiate a rollover

workers' compensation insurance will make compensation payments to an injured worker

only if he has been hurt on the job

a factor that is likely to have the greater effect of automobile insurance is the

owner's driving record

Any credit card purchase will effectively be an interest-free loan if you:

pay off the entire balance on or before the due date.

A progressive tax system is one in which

people at higher-income levels pay tax at a higher rate than people at lower-income levels

a personal liability umbrella is more likely to be opted for by

people with high incomes and high net worth

a ? is a hybird form of health maintenance organization (HMO ) that allows members to go outside of the HMO network for care

point-of-service (POS) plan

Term life insurance is characterized by

premium amounts related to the age of the insureds

Donna, who is single and 30 years old, received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance?

raising her deductible from $250 to $1000

Fredrick purchased a property worth $150,000 on mortgage. He had paid $30,000 as a down payment on this property. However, because of a recent slump in the real estate prices, the property is worth only $110,000, forcing Fredrick to sell the property. Assuming that no mortgage payments have been made by Fredrick, this sale is termed a(an) _____.

real estate short sale

Phil and Christina are recently married and are unsure of where they will be relocated after Christina finishes her residency in 9 months. Based on this information, which of the following housing recommendations would be most appropriate for them?

renting a home

A check you issued last week has been stolen. You can prevent it from being withdrawn from your account by an unauthorized person by

requesting a stop payment

Earnest money is the sum of money the home buyer deposits with the

seller to indicate intent of purchase

A capital gain is the result of

selling an asset for more than purchase price

Most homeowners get financial benefit from owning a home as it results in

tax savings due to tax shelter.

With a bank credit card, one can often avoid interest charges if:

the account balance is paid in full every month

A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary which means that

the cash benefits from your life insurance policy cannot be claimed by creditors

The consumer is

the central player the financial planning environment

Which of the following is a fixed auto ownership cost

the cost of automobile insurance

Section 2 of a homeowner's insurance contract covers

the cost of defending the insured

replacement-cost coverage is the reimbursement of

the cost of repairing or replacing damaged structures without deducting physical depreciation.

the purchasing power of income from a long term disability plan is protected by

the cost-of-living adjustment (COLA) provision

Long-term care is a term used to describe

the delivery of medical care to persons with chronic medical conditions in a nursing home

Section 1 of the homeowners insurance policy covers

the dwelling, accompanying structure, and personal property of the insured

when purchasing a long-term policy

the guaranteed renewability is recommended

When insuring property, people need to consider not only replacing and restoring the actual property in the event of a loss, but also

the liability arising from the insured's responsibility for property loss

A loan rollover means that:

the loan is paid off by taking out another loan.

A liability suit could result against you if

your dog bites your neighbor

The liquidity ratio is designed to show the percentage of ? you can cover with your current assets

Annual credit obligations

Which of the following will lead to a poor credit rating

Applying for a long-term loan and occasionally being late with a payment

If your ? Your net worth on the balance sheet will increase from one period To the next

Assets increase and liabilities remain constant

Which of the following calculation methods would produce more interest income for a person who uses his or her credit card Very frequently

Average daily balance including new purchases

The Rule of 78s is used to calculate the ________ when an installment loan is paid off early.

Balance due

You should consider your ? Before you take on a large consumer loan

Budgeted expenses

financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period

Buydown

Funds in commercial banks are protected by the

Federal deposit insurance Corporation (FDIC)

The insurance designed to help with nursing home or in-home care due to chronic illness is called

Long-term care

Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paid off as quickly as possible and wants to roll the balance onto a new credit card. She now uses a credit card only for emergencies. What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card?

Low annual percentage rate

Group health insurance premiums are

Lower than an employer's health insurance plan premiums

Henry is married to Lillian and they have two dependent children both of them want to file their own tax returns. Reporting only his or her income deductions and exemptions . The filing status Henry and Lillian in their tax return is

Married filing separately

The ? Method is the most accurate method of determining the amount of life insurance coverage needed for an individual

Needs analysis

Which of the following savings vehicles is free of state and local income tax

Savings bond

A ? Would most likely have to pay estimated taxes

Self-employed plumber

The Wilson short term goals might include

Setting up an emergency plumber three months income

The annual percentage rate APR is equivalent to the stated rate of interest when the ? Is used to calculate finance charges

Simple interest method

Funds for Medicare benefits come from:

Social Security taxes paid by covered workers and their employers

You can learn about the financial strength of an insurance company by checking ? Rating system

Standard & poor

If you do not wish to itemize deductions the other deduction you can take is the

Standard deduction

If you are expecting difficulties in making your payment it is recommended that you

Talk to the creditors

It costs financial institutions more if their customers perform

Teller transactions

Which of the following types of insurance policies provide temporary coverage for a set period

Term life insurance policy

You are preparing your own tax return. Least costly source for getting your questions answered would be

The IRS office toll-free number

Which of the following is true of a good insurance agent

The agent is recommended by professionals like bankers and attorneys.

Which of the following is a reason for a decrease in the average propensity to consume with an increase in income

The cost of necessities represents only a small portion of income

Which of the following about setting long-term goals

The goals should be realistic

The more frequently A bank compounds interest, ? For a given nominal rate will be

The higher the effective rate

Which of the following is a feature of a home equity loan

The interest paid on a home equity loan is tax deductible.

Which of the following is true about investments

The length of time for which money is invested is important

When comparing two installment loan with the same principle and annual percentage rate APR the loan with

The longer maturity will have the lowest monthly payment and higher total costs

Which of the following is true of loan maturity

The longer the loan maturity the higher amount of interest paid

Insurance companies use actuarial date to measure

The risk of loss of a given population

The real estate agent's commission is generally paid by

The seller

Cash surplus on an income and expense statement prepared on a cash basis indicates that

The total expense is less than the total income

? Involves some type of debt restructuring by establishing a debt repayment schedule

The wage earner plan

Which following is true of safe deposit boxes offered by banks

They can be used as a storage place for important documents

Which of the following statements is true of credit Unions

They provide installment loans to their members

A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a

Lien

The biggest fixed cost of owning a car is likely to be the

Loan payments

Using ? To Handle financial emergencies is recommended

Savings

The maximum coverage under most dental policies is often in the range of ? Per patient

$1000 to $2500

Marilyn Simms died with a $200,000 life insurance policy. Her husband jack is the primary beneficiary and their children Mimi (age 24) and Ann (age 30) are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed

$200,000 to Jack

a $100,000/$300,000 bodily injury liability automobile policy could pay up to a total of ? to all insured victims in one accident

$300,000

Assume that your total income for the current year is $35,000 your total expense including taxes of $5000 is 30,000 your savings ratio is

16.7%

You are likely to have financial difficulties if your personal credit obligations exceed ? Of your take-home pay

20%

A taxpayer can file for an automatic extension of ___ months.

6

When you lease your apartment from the corporation that owns the building and you own a share of the nonprofit corporation you own

A cooperative apartment

If the insurance rates and monthly mortgage payments do not change over the life of your mortgage you have

A fixed rate mortgage

? Would be considered part of your taxable income

A gain from the sale of your assets

Is a situation where homeowners owe more to the lenders than what their property's are worth

A negative equity

Which of the following represents a disadvantage of a whole life insurance policy

A whole life insurance policy often provides lower yields than other investment vehicles.

Which of the following is subject to federal income tax

Alimony received

Joe Gustafson is a very busy person who likes to handle all his financial services needs with one account if possible. Which of the following types of accounts would best serve this need?

An asset management account

? Will be listed as a liability on your balance sheet

An education loan

Financial planning for young people primarily concerns

Career

A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the

Chartered Life Underwriter

At the end of your car lease period you intend to turn in The car and you will not pay extra at the time based on the residual value of the car you have a ? Lease

Closed end

Are the expenses that borrowers pay when a mortgage is closed and They receive title to the purchased property

Closing costs

An economy experiences ? After a peak

Contraction

There is a need for budget adjustments when

Count deficits are more than surpluses

A ? Is an agency that provides credit information about individual borrowers to lenders

Credit bureau

Which of the following sources of consumer loans often has the most favorable terms for borrowers

Credit unions

Loan should be recorded as a liability on the balance sheet at their

Current outstanding balance

Financial plans include setting goal dates which are

Dates in the future when the goals are expected to be achieved

The Federal deposit insurance Corporation insures each ? Up to a stated maximum dollar amount at any given financial institution

Depositor

Which of the following is true asset management accounts

Deposits are protected by the security investor protection corporation (SIPC)

Christina's bank allows her employees to directly deposit her paycheck into her personal bank account the service provided by Christina's bank is called a

Electronica funds transfer system (EFTS) service

Tex practitioners who are Federally licensed are called

Enrolled agents

Tax ? Is an illegal practice

Evasion

The stage in which the economy hits a peak is called

Expansion

When Phil lists house his balance sheet he should record its

Fair market value

A simplified version of form 1040 for individual income taxIf you have a taxable income of less than $100,000 from wages only and you do not claim any itemize deductions or any tax credit is

Form 1040 EZ

You made an error when you filed your tax return last year you can correct this error by filing

Form 1040 X

A single payment loan is advantageous to borrow only if

Funds are expected to be available in the future to repay the loan in a lump sum

Are loans offering low payments for the first few years gradually increasing until year three or five and then remaining fixed

Graduated payment mortgage

Your take-home pay is what you were left with after subtracting withholding from your

Gross earnings

The total amount of salary you earn before taxes are deducted is your

Gross pay

Employers often provide ? Life insurance as a fringe benefit for their employees

Group

A strong economy leads to

High employment opportunities

A ? Is an example of a tangible asset

House

Medicare is a government sponsored health care plan composed of part A and part B. Part B provides

Imaging laboratory tests and prosthetic devices

The federal government revenue from ? Tax

Income

Inflation refers to

Increasing prices

The decision about whether or not to grant you credit will be made by

Individual creditors

A ? Loan is a loan that is repaid in a series of fixed scheduled payments rather than in a lump sum

Installment

Which of the following is true of installment loans

Installment loans, like home equity loans, offer the benefit of tax deductibility on the interest paid on them.

The majority of each monthly payment at the beginning of the loan goes to pay the:

Interest

The ? On a student loan is (are) sometimes tax deductible

Interest paid

A tax audit is a

Internal revenue service (IRS) attempt verify the accuracy of a return

The total amount of income tax you owe in one year is your tax

Liability

William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card?

No annual fee and long grace period

Which of the following is a characteristic of a universal life insurance policy

No choice in how the accumulation account is invested

Which of the following is an illegal method of reducing your current tax liability

Not reporting the taxable income you receive

Which of the following leads to the payment of a higher insurance premium by the potential individual

Obesity of the potential insured

A check you wrote to buy shoes last week has not yet been processed by the bank. It is said to be

Outstanding

Which of the following portions of a mortgage loan is recorded as a liability on the balance sheet

Outstanding principal portion only

The average propensity to consume refers to the

Percentage of income spent for current consumption

The income and expense statement examines your financial

Performance

At which of following stages does an individual tend to have the highest income?

Pre- retirement

? Value is the value today Of an amount to be received in the future

Present

Which of the following modes of identity theft involves thieves obtaining your personal information from financial institutions and other sources under false pretenses?

Pretexting

Are ongoing cost of home ownership

Property tax and insurance

The most popular use customer loans is to

Purchase a car

If you don't have much down payment money a ? Can effectively act cheapest source of down payment

Rebate

The last step in the financial planning process is to

Redefined goals and revise plans and strategies as personal circumstances change

A bank customer with drawls funds by writing checks from his or her negotiable order of withdraw (NOW) account and

Regular checking account

Borrowing from ? Is seldom recommended by financial advisors

Relatives

A ? Is a common provision in many term policies

Renewable clause

Which of the following statements is true of retail charge cards

Retail charge cards are issued by retailers that allow customers to charge goods and services up to a preestablished amount.

A frequent flyer card can be aptly classified as a(n)

Reward card

Which of the following is true of risk avoidance

Risk avoidance is any activity that helps evade an act that creates a risk.

Which of the following is true of the workers; compensation insurance?

Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes

What can you do if your budget shows an annual budget deficit?

You can Liquidate investments to meet the total budget shortfall for the year

you record ? on an income and expense statement

Your charitable payments

An exclusive provider organization (EPO) is _____.

a managed care plan that reimburses members only when affiliated providers are used

When doing an account reconciliation Interest earned on your account should be

added to your checkbook ledger

money market mutual funds

allow check writing above a stipulated minimum amount

auto insurance is needed primarily

as protection against potential liability claims

Ideally, retirement planning should begin:

as soon as one starts earning

Jane is a college student who withdraws cash at least five times a week to meet her everyday expenses. Jane should have a checking account with good:

automated teller machine facilities.

The price of the car you are leasing is called the

capitalized cost

Which of the following statements is true about cash advances that the holder of a bank credit card can obtain from participating banks

cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account.

People who do not have checking accounts often use

cashier's check

Which of the following is listed as an asset on an individuals balance sheet

checking accounts

an insurance company assigns more complex loss cases to a

claims adjustor

Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan.

collateral

Factors typically influencing the choice of where to maintain a checking account are:

convenience, services, and cost

a personal liability policy typically includes

coverage for auto-related liability losses in excess of the limits purchased in the automobile insurance

a payment made using ___ is equivalent to paying by cash

debit card

an increase in the amount of the deductible will

decrease the amount of insurance premiums

In account reconciliation One of the steps in calculating adjusted bank balance is

deducting total withdrawals still outstanding from bank balance

The loss in the value of An automobile over time is called

depreciation

some employers providing health insurance as an employee benefit offer only one plan and pay

either all or part of the health care insurance premiums

Negligence occurs when someone:

fails to act in a reasonable manner

the liability under a personal automobile policy is provided to

the non-family members involved in the accident

a homeowner's policy does not provide protection for

the personal property of tenants

at the scene of an accident, the police are only responsible for assessing

the probability of a law violation

Which of the following can be excluded from a monthly credit card statement

the type of goods purchased

which of he following is true of companies that sell insurance directly to consumers?

their premiums are lower than for companies that sell insurance through agents

Connie is a 20 year old college student who earned $8,000 and spent it all on her support during the year. Her parents may claim her as a tax dependent as long as

they contribute more than half her support for the year

Employees should consider risk assumption for certain health risks because

they would rather pay small amounts from savings than higher premiums to cover them.

The first step in the auto-buying process should be

to analyze how much you can afford to spend on the car

One of the key goals of the Affordable Health Care Act of 2010 is:

to reduce the number of uninsured citizens in the country

You are solvent if your

total assets exceed your total liabilities

You are going on an overseas trip and you want to carry checks you should purchase

traveler's checks