HDF Test 2

How much in addition to PI should a home owner estimate for insurances, property taxes, maintenance, and upkeep?

25-33% or 30%

What are the minimum BIPD coverage requirements in the state of Texas? Is this adequate coverage?

30/60/25 NOOO

If your credit card is lost or stolen and then used, what is your liability?

50 max

What are the 3 credit reporting agencies? What are their functions?

Experian Trans- Union Equifax Collect information from banks, finance companies, merchants and other creditors

What are fixed rate mortgages? What are Adjustable rate mortgages? Given all the different creative mortgages, which is typically recommended?

Fixed Rate- same rate every month *recommended adjustable rate mortgage

What are the characteristics of insurable risks?

Large number of potential exposures (pool) Fortuitous loss (initially can't predict who will have the loss) Low(er) premium cost than loss Non-catastrophic loss Loss must be measurable Loss is personal in nature

What is the snowball strategy for paying off multiple debts? Why would people sort by balance and sort by interest?

Make payment to all balances + accelerated amount on one.Once the one is paid off, use the accelerated amount + previous account payment to accelerate the next payoff. Momentum / Pay off highest interest first so they don't have to pay more on it in the future

Know the different types of coverage that are often sold as part of auto insurance. Which is/are mandatory by state law? What 3 are automatically offered in the state of Texas? Which ones are typically required by lenders?

Mandatory: Liability 1. under/uninsured motorist 2. Personal Injury Protection 3. BIPD offered in state of texas required by lenders: collision, comprehensive (physical damage other than collision)

What are medical payments and PIP? Who do these cover? What does PIP cover that medical payments do not cover?

Medical - pays medical, hospital, and funeral expenses - you, your family, passengers in your car PIP (Personal Injury Protection) all of above AND lost wages 80%

What are the basic differences in how broad the coverages are for Texas' HO-A, HO-B, and HO-C policies? Which policy is the most popular coverage in Texas? Which is the most expensive? Which coverage doesn't provide coverage for many common claims?

HOA- limited HOB- recommended; adequate; most popular HOC- all risk, expensive

What factors contribute to the cost of auto insurance?

Rating territory (incidence of claims, traffic density, weather, etc) - determined by where car is garaged Type of car Driver's age, gender, & marital status Auto use & typical driving conditions Driver's education/defensive driving Good grades •Drinking/smoking Insuring more than 1 car Deductible size Paying for term of the policy vs. paying monthly Paying monthly is more expensive. Car's safety features (airbags, automatic seat belts; anti-theft devices) Driving record Credit Scores (in some states)•Bundling (Family plans; with HO insurance)

What can be done to reduce insurance costs?

Use deductibles Be self-insuring Pay premiums annually Use group insurance Buy big policies Try buying direct from company

What is under/uninsured motorist coverage? Why is this an important coverage to have?

Used for "hit-and-run" - when others don't have insurance

What is amortization? What is an amortization schedule?

amortization: the process of gradually paying off a loan through a series of periodic payments amortization schedule: a table outlining each monthly payment, portion will go to interest and portion will go to principal owed, and the debt remaining

How often can you check your credit report at each of the credit reporting agencies for free?

annually

What is a FICO score?

credit score 1. Length of credit history 2. Payment History* 3. Amounts Owed* 4. Types of Credit used 5. New credit

What is the point of the newspaper clippings, "is it safe anywhere?" as it relates to need for insurances in general (not just natural disasters)?

disaster is everywhere waiting

Can an auto insurance company choose not to renew a policy for accident related claims and driving behaviors? For weather related claims? For damage by birds and animals or falling objects?

YES

Given a standard Texas homeowner's policy, which perils are typically covered by homeowner's insurance? Which perils are not typically covered? (know the hurricane exception for Gulf Coast of Texas)

flooding, earthquakes, bugs, freezing pipes, wind/hail typically not covered

What does it mean to freeze your credit reports? When can this be done free of charge?

freeze inquiries into credit identity theft

What is the federally endorsed URL for getting a free credit report?

ftc.gov

What factors affect HO premiums?

home age and condition homes replacement cost constrcution materials used in home where you live availability of local fire protection claims history credit score

What are the tax benefits of home ownership? What cannot be deducted?

home loan interest deductable property tax deductible mortgage insurance premiums capital gains can be tax free YOU CANT DEDUCT Payment on principle of loan/ Payment of homeowner property insurance premiums

What is an umbrella policy? What other policies must a person have in order to purchase an umbrella policy?

home owner, auto, must have maxed all of them

Why might higher BI coverages be considered? Why might a higher PD coverage be considered?

if there were 2-3 cars involved

When you agree to cosigning a loan, you should be prepared to do what?

pay the full amount for the loan plus late fees

What is considered consumer credit?

personal, non-mortgage, credit and debit

Can you withhold payments on credit cards for damaged products and poor services?

yes, if you make a sincere effort to contact your creditor

Does it make sense for some to rent instead of buy? What are some reasons why renting would make more sense?

yes; market, lifestyle, amount of time

Why is it important to negotiate at places where negotiation is part of the sales process?

you may be able to get things as apart of the package if you negotiate

What goes into "home equity?" And how can you easily calculate home equity?

your ownership in the home current market value- current mortgage liability

What does it mean that "your lifestyle 'materializes in consumer purchases?'"

every buying decision is a statement about your lifestyle

What is a home equity loan? What is the rule for home equity loans in the state of Texas? (be able to calculate the maximum home equity loan a person could take out given market value of their house, and remaining balance on the original mortgage).

- You can take a new mortgage on your own equity of you house (lower the interest rate) texas homestead law in 1998 said they can borrow on their own equity estimate value of home x .8= TOTAL - any mortgage balance= max loan amount

What does it mean to be "upside down" on a loan, and how can you avoid doing it with a car loan?

- paying more than the car is worth

Why is it important to save receipts for large purchases? (how long should you save them?)

- receipts should be saved to explain warranties etc reference

What are discount points?

1 point is 1% of the amount borrowed Paid to the lender Buys down the interest rate on mortgage ($ difference in points) = # of months($ difference in Mo.Pmt) to Breakeven

1) Detached structures; 2) personal property on premises (know both actual cash value and replacement value percentages); 3) personal property off premises.

1. 10% insured value 2. 40% insured value 3. 10% of property on premisis or 1000$ whichever is cheaper

Know the risk management process, including what is meant by avoiding risk, reducing risk, retaining risk, and transferring risk.

1. identify risk exposures 2. evaluate potential losses (probability it will occur and the cost if it does occur) 3. Choose appropriate risk management plan (avoid, retain, reduce, transfer) 4. implement plan 5. reevaluate regularly

what're the 3 topics in the book about car buying?

1. leasing vs. buying about lifestyle, usually a lower lease cost is offset by fine print costs 2. extended warranties, READ fine print (basically an insurance policy) 3. be knowledgable and negotiate!

On average how much more do people tend spend when using credit vs. cash?

10-20% more

What are the recommendations about how often to review insurances?

2-3 years, major life event occurs, OR substantial increase in net worth

What is the difference between "actual cash value" and "replacement value" of losses to personal property? Know how to estimate the depreciation of a item using actual cash value given the average lifespan of the item. Which is less expensive?

ACTUAL: - dollar value you could realize if you were to sell the item today; reflects appreciation/reflects depreciation REPLACEMENT: Dollar value to purchase a new item exactly like the item destroyed/stolenLIFE OF PROPERTY DEPRICIATION:

What is APR?

Annual Percentage Rate - percentage cost of credit on a yearly basis

What do the 3 numbers of the BIPD liability coverage stand for? Know how to use these to estimate how much a person or the insurance company would pay in a given scenario.

Bodily Injury and Property Damage Limit that will be paid to one in an accident/limit that will be paid to all persons in an accident/ limit for payment for all damage to property to others ex- 100/300/50 100,000 per person for bodily injury 300,000 per accident for bodily injury 50,000 for property damage MAX amount is 350,000

What does it mean to refinance a home? Tax benefits of discount points and loan origination fees are amortized over the life of the loan, what does this mean?

Both loan origination fee and discount points must be amortized over the life of the mortgage for tax purposes- apply the breakeven concept to see if you will break even over the life of a loan

What is chapter 7 bankruptcy? And what is chapter 13 bankruptcy? (know the basic rules of each)

Chapter 7: Submit a petition to the court that lists assets and liabilities, and pay a filing fee; NOT ALL debts forgiven, assets SOLD Chapter 13: A voluntary plan proposed to the bankruptcy court for those to want to pay a portion of debt up to five years; get to keep assets

What are the 5 c's creditors look for in a borrower? (know what they mean)

Character - Do you pay bulls on time? Capacity - Can you pay the loan? Capital - What are your assets and net worth? Collateral - What properties could be potentially repossessed? Conditions - What economic conditions could affect your ability to repay a loan?

What were the different sources (types) of loans/financing?

Conventional loans FHA Loans VA Loans USDA Energy Efficient Mortgage programs (extend loan limits for energy efficient upgrades) HUD loans, special FHA for a fixer-upper Good Neighbor Next Door (assistance for teachers, law enforcement, firefighters, EMTs to buy in "revitalization areas")

What are the keys given to determine if insurances are necessary, important, or just optional?

Necessary: loss could be devastating to long-term financial well-being (i.e., loss of ability to earn an income) Important: loss would require the use of credit to be resolved Optional: loss could be covered out of emergency fund or cash flow

If auto insurance is mandatory for all drivers in the state of Texas, how do "high risk" drivers obtain their auto insurance? What type of coverage are they typically provided? How costly can it be? (the % surcharge that it can be)

Only coverages company must sell are BIPD 30/60/25; PIP $2,500; Uninsured/underinsured Motorist 30/60/25 UP to 100%!! double

What is other than collision (comprehensive coverage)?

Pays for damage to you car when physical things happen to your car when other things happen other than collision

What is collision coverage?

Pays for damages to your car when you are at fault When you hit another car or object (like a fence or tree)

What is PITI?

Principal Interest Taxes Insurance

Terms: risk, peril, hazard, risk management (and premium, and policy, not on the same slide, you may need to look in the book).

Risk: Uncertainty or lack of predictability, such as to loss that a person or property, covered by insurance, faces. Peril: is the cause of a possible loss, such as fire, windstorm, robbery, disease, or death Hazard: increases the likelihood of a loss, such as driving drunk, or defective house wiring Risk Management: Organized, planned strategy to protect your assets and family Premium: People purchase a policy and the firm assumes a risk for a fee called the premium, which the insured policyholder pays periodically Policy:

Qualify for a certain loan- front end ratio (just mortgage)

The Mortgage Debt Service Ratio (Front-end Ratio) the total annual expenditures for housing with the loan applicant's gross annual income-25-29% are seen as maximums (expect around 28%)

What are the best types of risks to transfer? (this is also considered to be the fundamental principle of insurability).

Transfer the risk for losses that would be large in dollar amount even though these high-dollar losses have a relatively low probability of occurring

How has consumer credit spending been changing in America? (general trend)

rising

What is the point that Dr. Pope made with the numbers for his life insurance policy and paying monthly versus annually?

it was like a 9% difference! like 8 dollars or something but it adds up!

What are the recommendations on purchasing accident death? Towing? Rental endorsements?

make sure you don't pay for double coverage on this is you already have it

If the large purchase will reoccur again in the future, what should you start planning on doing after making your purchase? (or if not then, when you finally pay off the item if you borrowed money to purchase it.)

making payments for the next car

What are personal articles floaters? What sort of items should you consider purchasing a floater or a separate policy for?

money, jewelry etc, things that cost a lot usually all-risk

Qualify for a certain loan- back end ratio (ALL debt)

monthly The debt service ratio the total of all monthly debt payments with gross monthly income-33-41 percent are seen as maximums (expect around 36%) lenders limit x monthly income = mortgage usually around 25% BUT monthly debt service is 40 %

According to Dr. Pope you should __________ the minimum balance on your credit card.

never, never, never pay

What are the traditional financial guidelines for amount you spend on housing?

no more than 25-33% on housing

Is 20% down required? If one doesn't have 20% down what will they end up paying?

no; they will end up paying more on interest but they can have a tax advantage on the interest greatre leverage

What are the advantages and disadvantages of a 15-year loan? a 30-year loan? What are other methods to reduce interest costs on a loan and build equity more quickly?

other methods to reduce interest costs is to have a large down payment, biweekly rather than bimonthly, accelerated payments

Who appears to win on "cash flow?" who appears to win after taxes and appreciation?

renters owners

Typically who pays for the commissions for the buyers and sellers real estate agents?

sellers

Why is it important to determine what features are "essential," "important," and "nice" before you go car shopping?

so you know what you want

Are most types insurances federally or state regulated?

state