fin125 chapter 8

Assume your 10-year old home originally cost $300,000 and is expected to have a 50 year life. Unexpectedly, a fire totally destroys your home and the home is now worth $350,000. Under the actual cash value method, what will the insurance company pay you?

$280,000 The yearly depreciation amount is calculated by dividing the current cost ($350,000) by the expected life (50 years), which means the annual depreciation amount is $7,000. The total depreciation for the 10 years the home is held is equal to $7,000 multiplied by 10 years, which equals $70,000. The amount of insurance coverage can now be calculated by current cost ($350,000) minus total depreciation ($70,000), which equals $280,000. - 20% if insured

Examples of risk reduction include:

-installing smoke alarms -wearing a seat belts in a car

According to the text, you should consider automobile insurance coverage of $50,000 up to $ for property damage liability.

100,000

Comprehensive physical damage insurance for your car covers damage to your vehicle if you are at fault in an accident with another vehicle.

False

Which of the following is true of your personal insurance program?

It should change along with your needs and goals.

All of the following are actions that you can take to reduce your auto insurance premiums and qualify for discounts, except:

Keeping poor driving habits

All of the following are characteristics of pure risks, except:

Non-insurable

Which of the following are covered by a homeowner's policy?

Other structures A house Personal property

Which of the following are covered by renter's insurance?

Personal liability Additional living expenses Personal property

Comprehensive insurance for your car covers damage to your car from such risks as fire, theft, falling objects, and hitting an animal. (Enter one, non-hyphenated word per blank.)

Physical

Which of the following is not a method discussed in the video as a way to deal with risk?

Risk Exchange

Which of the following are general risk management techniques?

Risk reduction Risk assumption Risk avoidance

Which of the following are risk assumption actions?

Self-insuring Deciding not to purchase collision insurance

A peril is defined as:

The cause of a possible loss, such as accidents, fire, windstorm, robbery, disease, or death.

In split limit coverage, the second number represents:

The limit for claims that can be paid to all individuals involved in an accident where you are liable.

The best risk management plans are flexible enough to handle life's changing situations.

True

When we set up a special fund to cover the cost of a loss, we are self-insuring.

True

Uninsured and underinsured motorist's protection provides protection for you and your family against all of the following, except:

You are in an accident caused by a person with high premium auto insurance.

All of the following are situations that could cause your insurance premium to increase or decrease, except:

Your neighborhood has a Homeowner's Association.

The legal responsibility for the financial cost of another person's losses or injuries is known as:

liability.

The main influences on the paid for home and property insurance include location, type of structure, and policy type. (Enter only one word.)

premium, fee, price, amount, or premiums

Factors that insurance companies consider when determining premiums for auto insurance include all of the following, except:

Household income

is protection against possible financial loss that allows you to be prepared for the worst.

Insurance

Wage loss insurance will reimburse you for:

any salary or income lost due to injury in an automobile accident

The two main categories of automobile coverage are:

bodily injury property damage

The two standard renter's insurance policies are broad form and form.

comprehensive

Most homeowner's policies cover many perils, but not:

flood.

Automobile insurance covers damage and personal damage (bodily injury) caused by the policyholder's car.

property, vehicle, or physical

All of the losses would be covered by homeowner's insurance except:

you accidentally injure yourself with a sharp blade at home.

Which of the following is true regarding insurance?

Insurance is not the only way of dealing with risk.

Which of the following are risk avoidance actions?

Which of the following are risk avoidance actions?

Risk management needs are the same throughout one's life.

false

Why is it important to compare auto insurance premiums?

Different insurance companies, even in the same geographic area, can have premiums that vary as much as 100%.

Homeowner's insurance does not cover injuries to people on property.

False

Insurance for your home should cover the amount you paid for the home.

False

Assume your 10-year old home originally cost $300,000. Unexpectedly, a fire totally destroys your home. Over the past 10 years, your home has increased in value by 20 percent and is now worth $360,000. Under the replacement value coverage, what will the insurance company pay you?

If a fire destroys this home, the insurance company will pay the homeowner $360,000 - the replacement cost of the home. Because you chose replacement coverage, there is no depreciation deducted from the current value of your home.

According to the text, your homeowner's insurance covers damage to your home and any other structures on your property.

True

Not buying flood insurance on a house is an example of risk assumption.

True

Your driver classification is one of the main factors that affects the premium for your vehicle insurance.

True

The main bodily injury coverages are bodily injury liability, mortgage payments coverage, and uninsured motorist's protection.

false

In a no- system, drivers involved in accidents collect medical expenses, lost wages, and related injury costs from their own insurance companies.

fault

Insurance is a protection against possible _______ loss, and provides protection against many ________.

financial, risks

A is anything that increases the likelihood of loss through some peril.

hazard

Defective house wiring is an example of a:

hazard

Risk management is a(n) ________.

long-range planning process Reason: Risk management is an organized plan for protecting yourself, your family, and your property. It helps reduce financial losses caused by destructive events. Risk management is a long-range planning process.

Choosing not to participate at all in any kind of heavy physical activity is one way to protect yourself from injury. This is an example of:

risk avoidance.

Not eating a high fat diet and exercising lower the chances of illnesses. This is an example of:

risk reduction.

Setting aside a special fund to make sure that you would cover yourself in the event of a loss is:

self-insurance.

Homeowner's coverage includes:

toolshed. trees. garage. plants.

Beyond the standard bodily injury and property damage coverage, other possible automobile coverage includes:

towing services. car rentals. wage loss.

The main bodily injury coverages are:

-bodily injury liability -uninsured motorist's protection -medical payments coverage

Your insurance protection for your home should be based on the amount needed to or repair your house and not the amount you originally for the home.

-rebuild -paid

Which of the following is an example of a detached structure that is covered under homeowner's insurance?

A garage

In a ______ system, drivers involved in accidents collect medical expenses, lost wages, and related injury costs from their own insurance companies.

no-fault

According to the text, the amount of property damage liability coverage that is suggested is:

$50,000 to $100,000.

Risk management is a long-range financial planning process that helps reduce financial losses caused by destructive events.

True

You can be held legally responsible for another person's injury or damage even if it was not your fault.

True

The coverage of HO-3 policies includes which of the following perils?

Windstorms Theft Fire and lightning Smoke

Medical payments insurance provides medical benefits or the cost of health care to:

You and individuals injured in your automobile.

Choosing never to drive to work, so you are not in an accident is an example of risk _____.

avoidance

A home located in an area where there is a history of high claims will have premiums.

high

The main factors that influence premiums for automobile insurance are:

vehicle type, rating territory, and driver classification