Personal Finance test 2
Marilyn Simms dies 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 injured victims in one accident.
$300,000
It is advisable to purchase life insurance from an insurance company that has been in business for at least ________ years.
25
A grace period permits a policyholder to retain full death protection even though the premium has not been paid for:
31 days
Homeowners are eligible for reimbursement on a full replacement-cost basis only if they keep their homes insured for at least __________ of the amount that it would cost to build them today.
80 percent
Universal life insurance is:
A combined investment plan and insurance policy.
__________________ is a health care plan that emphasizes cost control and preventive treatment.
A managed care plan
An exclusive provider organization (EPO) is _____________________.
A managed care plan that reimburses members only when affiliated providers are used
Which of the following statements is true of medical insurance costs in the U.S.?
A poor demand-and-supply distribution of health care facilities and services has increased the health care costs.
Which of the following changes would tend to increase the premium on a disability policy?
A shorter elimination period.
Group life insurance is most likely to be for ___________________________.
A term
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.
Group life insurance is:
An insurance that provides a master policy for a group.
Nonforfeiture rights guarantee that a policy owner will not lose his or her policy's _____________________.
Cash value
If a term life insurance is convertible, the policy can be:
Changed to a comparable whole life insurance policy
A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the __________________________.
Chartered Life Underwriter
Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____________________ policy.
Continuous whole life.
_______________________ and __________________________ are both relatively expensive types of decreasing term life insurance
Credit life; mortgage life
Insurance is a tool that can reduce one's ________________ risk.
Economic
Employers set up a salary reduction agreement with the employees if:
Employees need additional insurance benefits.
_____________________ can be both an advantage and a disadvantage of universal life insurance.
Flexible premiums
Standard homeowner's policies will not include coverage for damage done by __________.
Flood
Employers often provide __________________ life insurance as a fringe benefit for their employees.
Group
Which of the following policy features allows the insured to increase coverage periodically without showing proof of insurability?
Guaranteed purchase options.
Ben's (aged 40) health coverage charges a low ($15) deductible each time he visits a doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben has the advantages lack of deductibles, few or no exclusions, and not having to file insurance claims. Which of the following most likely provides Ben's health coverage?
HMO
Which of the following is a basic, seldom-used homeowner's policy with very narrow coverage?
HO-1
Which of the following homeowners' policies provides coverage for damage caused by electrical current?
HO-2
Which of the following homeowners' policies provides coverage for the damage caused by the accidental discharge of water or steam?
HO-2I
Which of the following homeowners' policies is best suited to a renter of an apartment?
HO-4
The __________ is a good homeowner's policy for a condominium owner.
HO-6
During the past few decades, the percentage of our income spent on health care:
Has increased due to an aging U.S. population.
One drawback of long-term-care insurance is its:
High annual premiums.
Medicare is a government-sponsored health care plan composed of Part A and Part B. Part B covers _________________________.
Imaging, laboratory tests, and prosthetic devices.
Which of the following is true of the health care industry?
In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
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.
______________________ insurance is a type of insurance that is issued in policies with small face amounts, often $1,000 or less.
Industrial life
A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed _________________.
Industrial life insurance
Even though homeowners are eligible for reimbursement on a full replacement-cost basis if they keep their homes insured for at least 80 percent of the amount that it would cost to build them today, __________ can cause the actual amount of coverage to fall below 80 percent.
Inflation
Medicare is a government-sponsored health care plan composed of Part A and Part B. Part A provides _________________________.
Inpatient hospital services.
A(n) _______________________ policy is a contract between an individual and a company under which the company agrees to reimburse the individual for losses suffered by him or her according to specified terms.
Insurance
An individual receiving health care:
Is allowed to receive multiple payments from more than one insurance company for this care.
In order to predict the number of losses that will occur in a given time accurately, insurance companies must study a ________________ number of cases.
Large
You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you need life insurance for the rest of your life. You should choose a _________ insurance.
Limited payment whole life
________________________ is an activity that lessens the severity of loss once it occurs.
Loss control
_________________ is an activity that reduces the chance that a loss will occur.
Loss prevention
The probability of a loss occurring can be reduced by ____________________.
Loss prevention.
Group health insurance premiums are ________________.
Lower than an employer's health insurance plan premiums.
Which of the following is true of long-term care insurance?
Many policies offer inflation protection riders for an additional premium.
A good health care insurance plan embodies more than financing medical expenses, lost income, replacement services; it incorporates ___________________.
Means of risk reduction such as risk avoidance.
Which of the following is a public assistance program that provides health insurance benefits only to those who are unable to pay for health care?
Medicaid
It is not possible to avoid ______________________.
Most risks in your life.
If you are laid off, your group health insurance ___________________.
Must be continued if you pay the premiums.
A life insurance policy can be structured so that death benefits are paid directly to a(n) _________________, which means that creditors cannot claim the cash benefits from the life insurance policy.
Named beneficiary
The _____________ method is the most accurate method of determining the amount of life insurance coverage needed for an individual.
Needs analysis
The most accurate way to determine how much life insurance you need it to use the _______________________ method.
Needs analysis
Which of the following is a characteristic of a universal life insurance policy?
No choice in how the accumulation account in invested.
Which of the following leads to the payment of a higher insurance premium by the potential insured?
Obesity of the potential insured.
Workers' compensation insurance will make compensation payments to an injured worker ____________________-.
Only if he cannot prove negligence on the part of his employer.
Insurance companies make profit by:
Paying out less than the sum of the premiums and the earnings on them.
Term life insurance is characterized by ________________________.
Premium accounts related to the age of the insureds
Disability income policies usually have a(n) ______________, which is a time delay from the date of the issuance of the policy until benefit privileges are activated.
Probationary Period
The community rating approach to health insurance premium pricing____________________.
Prohibits insurance companies from varying rates based on health status or claims history.
The basic purpose of insurance is to _______________.
Protect yourself from economic loss
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 $1,000
A ________________ covers the cost of visits to a doctor's office or for a doctor's hospital visits, including consultation with a specialist.
Regular medical expense insurance.
A(n) ____________ is a common provision in many term policies.
Renewable clause.
_________________ is an effective way to handle small exposures to loss when insurance is too expensive.
Risk assumption
__________________ is the choice to accept to accept and bear the risk of loss.
Risk assumption
Which of the following is true of risk avoidance?
Risk avoidance is any activity that helps evade an act that creates a risk.
_______________ involves staining from any activity that will affect an individual financially.
Risk avoidance.
The purchase of insurance is a common form of ___________ by the insured.
Risk transfer
When trying to determine your disability income needs, you should consider your available disability benefits from employers, income needs, and:
Social Security benefits.
Funds for Medicare benefits come from:
Social Security taxes paid by covered workers and their employers.
You can learn that about the financial strength of an insurance company by checking ___________________ rating system.
Standard & Poor's
A(n) _________________________ policy is a type of term insurance.
Straight term
The insurance portion of a universal life policy is most analogous to:
Term insurance.
Which of the following types of insurance policies provides temporary coverage for a set period?
Term life insurance policy
Which of the following statements is true of the Affordable Health Care Act (ACA)?
The ACA eliminates lifetime limits on total health care insurance payments by insurers.
The purchasing power of income from a long-term disability policy is protected by ____________________.
The Cost-of-living adjustment (COLA) provision.
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 statements is true of the health reimbursement account (HRA)?
The amount of unused money in the health reimbursement account can be rolled over annually.
The underwriting function of insurance companies is designed to ensure that premiums are based on ________________________.
The chance of losses.
________________________ represents the initial amount that's not covered by the policy and this must be paid by the insured.
The deductible
Long-term care is a term used to describe ________
The delivery of medical care to persons with chronic medical conditions in a nursing home
Underwriting refers to _______________________.
The determination of which exposures to insure.
While performing needs analysis, when determining the available resources to offset the economic needs, you would generally ignore:
The educational qualification of the children.
When purchasing a long-term care policy,
The guaranteed renewability provision is recommended.
In a traditional indemnity (fee-for-service) plan:
The health care provider and the insurance are separate.
_________________ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.
The needs analysis method
Insurance underwriting is best described as:
The process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
Insurance companies use actuarial data to measure:
The risk of loss for a given population.
People under the age of 65 years are covered by Medicare health insurance plan if:
They receive monthly social security disability benefits.
Employees should consider risk assumption for certain health risks because:
They would rather pay small amounts from savings than higher premiums to cover them.
One of the key goals of the Affordable Health Care Act of 2010 is:
To reduce the number of uninsured citizens in the country
In order to qualify for disability insurance under Social Security, a person must be:
Unable to carry out the duties of any job.
Which of the following is true of insurance underwriting?
Underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss.
Insurance companies use ______________ to determine whom they will insure and what they will charge for the coverage.
Underwriting
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
The death benefit of a(n) __________________ life insurance policy may go down because of poor investment returns.
Variable
The policy owner assumes the investment risk with a ________________ insurance policy.
Variable life
Sales commissions and marketing expenses can increase the costs of a fully loaded _________________ policy.
Whole life insurance
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.
A liability suit could result against you if:
Your dog bites your neighbor
A higher home insurance cost may result from:
a low credit score of the insured.
The best way to buy automobile insurance is through __________.
an insurance agent
A captive agent is:
an insurance agent who represents only one insurance company.
The principle of indemnity will prevent:
an insured from collecting more than what he or she has lost.
A supplementary medical insurance (SMI) provides health care protection beyond the basic hospital coverage for:
anyone age 65 or over who pays premiums for more than 6 months.
Auto insurance is needed primarily:
as protection against potential liability claims.
The most preferred technique for determining how much life insurance coverage is needed for an individual is:
assessing the family's total economic needs and subtracting the financial resources available to meet those needs.
An insurance company assigns more complex loss cases to a __________.
claims adjuster
A personal liability umbrella policy typically includes:
coverage for auto-related liability losses in excess of the limits purchased in the automobile insurance.
Comprehensive automobile coverage refers to:
coverage for damage to an insured automobile from perils (with a few exceptions) other than collision.
An increase in the amount of the deductible will __________.
decrease the amount of insurance premiums
While using the needs analysis approach, we _____________________.
deduct an individual's available resources from his or her family's total economic needs.
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 primary purpose of life insurance is to provide:
financial security for dependents in the event of death.
Families faced with the loss of a principal wage earner receive Social Security benefits ___________________________.
from the government that are intended to provide basic, minimum support.
A(n) __________ agent represents multiple insurance companies.
independent
The first step in buying property and liability insurance is to develop a(n) __________.
inventory of exposures to loss
It pays to comparison shop for insurance policies because of the __________.
large variations in premiums and services
Medicare and Medicaid cover _____________.
less than half of the total cost of long-term care
The insurance designed to help with nursing home or in-home care due to chronic illness is called:
long-term care
The settlement option chosen by most policyholders is:
lump sum
A personal liability umbrella policy is more likely to be opted for by __________.
people with high incomes and high net worth
A coordination of benefits provision in a health care policy ___________ by collecting benefits in multiple payments for health care.
prohibits collecting more than 100 percent of covered charges
The personal property floater:
provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy.
To purchase a personal liability umbrella policy, the insured party must already have __________.
relatively high liability limits on their homeowner's and auto coverage
An insured individual's right to continue a health insurance policy if he or she chooses is known as:
renewability
A life insurance policy can be structures 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.
Section II 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.
Section I of a homeowner's insurance policy covers:
the dwelling, accompanying structure, and personal property of the insured.
An insured does not get the right to arbitration when:
the insurance company denies responsibility for the loss.
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
The liability coverage 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.
A personal liability umbrella policy is designed to __________.
the probability of a law violation
At the scene of an accident, the police are only responsible for assessing __________.
the probability of a law violation
From the standpoint of a person buying insurance, the central purpose of insurance should be:
to transfer the risk of serious losses.
Dependent children ___________ will usually be covered by your health insurance policy.
up to a stated maximum age
A _____ is standard in disability income policies
waiver of premium
Disability income insurance will provide income to a disabled or ill person ____________________.
with a waiting period before income is received.
Michael's estimated current monthly take-home pay is $4,500. His total existing monthly benefits is $2,950. Michael's estimated monthly disability benefits is _____.
$1,550.
Patrick's monthly take-home pay is $5,000. His net worth is $125,000. He estimated that he would receive Social Security benefits worth $1,000 and company disability benefits $2,000 if he becomes disabled. The additional disability benefits that he needs to arrange for equals _____.
$2,000
Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What is the amount of insurance, as per the needs analysis method, that Jonathan should purchase if he has current financial resources worth $1,000,000?
$1,000,000
The maximum coverage under most dental policies is often in the range of _____________________ per patient.
$1,000 to $2,500