Finance 470 quiz 3

Marcia owns a home with a FMV of $500K, with a land value of $150K. The home has a replacement cost of $300K, and she carries a homeowners policy with a replacement cost of $225K, a coinsurance provision of 80%, and a deductible of $1,000. She recently had a kitchen fire that resulted in a loss of $20K. How much will she be reimbursed from the insurance company for the loss? $19,000 $20,000 $17,750 $18,750

$17,750 (did you have/should have)*loss 225k/240k=.9375(20,000)-1,000

Due to the recent economic downturn, a distrust in banks, and concerns about government confiscation of assets, Michelle keeps all of her money under her mattress. Over time, she has accumulated $50,000 in cash. Unfortunately, her house burned down last week, destroying all of the cash under her mattress. If Michelle has a typical HO3 policy, how much will the insurance company pay for the lost cash? $0 $200 $500 $5,000

$200

All the following statements concerning actual cash value are correct, EXCEPT: inflation is considered in calculating actual cash value. Actual cash value is the basis in property insurance for determining the indemnity payable to an insured. Depreciation is considered in calculating actual cash value. Actual cash value is a permissible violation of the principle of indemnity.

Actual cash value is a permissible violation of the principle of indemnity.

Annuities have many advantages, including mitigating a variety of risks. Which of the following risks could be mitigated with an annuity? Market risk Superannuation risk Purchasing power risk Superannuation and purchasing power risk only. Only superannuation Market risk and purchasing power risk. All three listed risks.

All three listed risks.

FICO scores are an indication of a person's credit worthiness. Brian has a score of 500. How would you characterize his score? Excellent Good Fair Bad

Bad

Which is NOT a characteritc of variable annuities Multiple subaccounts for investing Additional riders that can enhance the features A fixed account option for more of a guaranteed return Beneficiaries will receive the lower of the contract fair market value or the purchase price (minus surrenders) at the death of the owner

Beneficiaries will receive the lower of the contract fair market value or the purchase price (minus surrenders) at the death of the owner

Which of the following statements comparing annuities to life insurance is (are) correct? 1. The primary function of life insurance is to create an estate or principal sum; the primary function of an annuity is to liquidate a principal sum, regardless of how it was created. 2. Both life insurance and annuities protect against loss of income - life insurance furnishes protection against loss of income arising out of premature death; an annuity provides protectionagainst loss of income arising out of excessive longevity. 1 only 2 only Both 1 and 2 Neither 1 nor 2

Both 1 and 2

Which of the following statements concerning annuities is (are) correct? 1. A flexible premium annuity allows the insured the option to vary premium deposits; whereas, an annuity purchased with a single lump sum is known as a single premium annuity. 2. An immediate annuity is one whose first payment is due one payment interval from its purchase date; whereas, a deferred annuity provides income at some date in the future 1 only 2 only Both 1 and 2 Neither 1 nor 2

Both 1 and 2

Which of the following statements concerning personal umbrella liability insurance is (are) correct? 1. The personal umbrella policy is designed primarily to provide liability coverage for catastrophic legal claims or judgments. 2. The personal umbrella policy requires the policy owner to carry certain underlying liability coverages of specified minimum amounts on both the homeowner's policy and the PAP. A claim made under an umbrella policy will pay only after the limits of the relevant underlying policy are exhausted. 1 only 2 only Both 1 and 2 Neither 1 nor 2

Both 1 and 2

Which is true about Social Security Benefits? Benefits are never taxed Participants must wait until age 65 to receive their benefits Delayed retirement credits are received after a participants Full Retirement Age up to age 70 if they haven't started benefits yet 100% of benefits received could be taxed

Delayed retirement credits are received after a participants Full Retirement Age up to age 70 if they haven't started benefits yet

Annuities have many features and characteristics. Which of the following statements is correct? The initial rate on a fixed annuity will last until the death of the first annuitant. Variable annuities and equity-indexed annuities both use equity sub accounts as an investment option. Variable annuities are generally no more risky than equity-indexed annuities. Earnings within variable annuities are deferred from taxation unless withdrawals or annuitization occurs.

Earnings within variable annuities are deferred from taxation unless withdrawals or annuitization occurs.

Which is not a characteristic of Fixed Annuities Equity-like investment options Guaranteed principal Guaranteed rate of return Only single premium

Equity-like investment options

FICO scores are an indication of a person's credit worthiness. Colie has a score of 790. How would you characterize the score? Excellent Good Fair Bad

Excellent

All the following statements concerning types of annuities are correct, EXCEPT: In a deferred annuity, if the insured dies during the accumulation period, a death benefit is payable. In an installment refund annuity, when the annuitant dies, installment payments continue until the full purchase price has been recovered. In a cash refund annuity, benefit payments will at least equal the purchase price of the contract. Flexible-premium contracts usually specify the amount of benefit payments during the payout period

Flexible-premium contracts usually specify the amount of benefit payments during the payout period.

Scott purchased a life insurance policy to insure that his kids were taken care of in the event of his untimely death. Since they are now grown, he feels he no longer needs the life insurance. He would like to exchange it for an annuity that can provide him additional income for his golden years. Which of the following is correct? He can make the exchange, but it will be taxable to the extent of the cash value He can make the exchange, but it will be taxable to the extent of the cash value less the additional money he puts into the annuity. This transaction is prohibited by the IRS He can make the exchange, which will not be taxable.

He can make the exchange, which will not be taxable.

Which of the following statements concerning the medical payments coverage in the personal auto policy is (are) correct? I Medical payments coverage is an optional benefit. II Medical payments coverage excludes payment of the medical expenses of the insured and his or her family members. I only II only Both I and II Neither I nor II

II only

All the following combinations of annuity types and methods of purchase are possible, EXCEPT: Immediate annuity/periodic premiums Deferred annuity/single premium Immediate annuity/single premium Deferred annuity/periodic premiums

Immediate annuity/periodic premiums

All of the following perils are covered under most homeowner's insurance policies EXCEPT: Windstorm Fire Lightening Mudslides and sink holes

Mudslides and sink holes

A building is covered by a fire insurance policy with a coinsurance provision. What happens if a partial loss occurs and the building is not insured for the required percentage of its full value? The loss is paid in full because it is not a total loss. The loss is not paid at all because the coinsurance requirement has not been met. The policyowner will receive a partial loss payment relative to the amount of insurance carried. The policy will be void because a condition subsequent to the contract was not met.

The policyowner will receive a partial loss payment relative to the amount of insurance carried

All of the following are true of Equity Index Annuities EXCEPT: Downside protection of your investment Participation in the upside market growth Guaranteed principal Unlimited upside growth

Unlimited upside growth

All the following statements concerning types of annuities are correct, EXCEPT: In a deferred annuity, if the insured dies during the accumulation period, a death benefit is payable. In an installment refund annuity, when the annuitant dies, installment payments continue until the full purchase price has been recovered. In a cash refund annuity, benefit payments will at least equal the purchase price of the contract. Variable annuities don't contain equity-like subaccounts

Variable annuities don't contain equity-like subaccounts

Which Homeowners policy has dwelling and personal property covered on an open perils basis? HO-3 HO-5 HO-6 HO-4

HO-5

Ken owns a home with a FMV of $750K, with a replacement cost of $$450K. The land value is $150K. He currently has a Home owners policy with a replacement cost of $270K, a coinsurance provision of 80%, and a deductible of $1,000. He just sustained $30K loss in to the upper floor of his home from a lightening strike. How much will Ken receive from the insurance company when she receives her claim settlement? $20,000 $19,000 $21,500

$21,500

Which of the following annuities will provide the most income to the annuitant for a given dollar outlay? Pure life annuity Life annuity certain Cash refund annuity Installment refund annuity

Pure life annuity

FICO scores are an indication of a person's credit worthiness. There are many factors that impact a person's FICO score. Which of the following do not impact a person's FICO score? Payment history Types of credit Salary history The establishment of recent credit cards.

Salary history

All the following statements concerning variable annuities are correct, EXCEPT: Variable annuities are designed to provide inflation protection for annuitants. Variable annuity contracts do not include a guaranteed minimum interest rate. In a variable annuity, the principal is guaranteed Variable annuities are subject to regulation by both the Securities Exchange Commission (SEC) and state insurance departments.

In a variable annuity, the principal is guaranteed

Which of the following individuals should consider purchasing an HO-8 policy? Margaret owns a classic Victorian style home, and the functional replacement cost of the home is less than the actual replacement cost. Nick owns a condominium in a resort community, and the functional replacement cost ofthe condo approximates its actual replacement cost. Charlie owns a home in a development style neighborhood, where many of the homes are similar to his. Craig rents a home from his friend, George, and would like coverage for his personalcontents, loss of use, and potential liability

Margaret owns a classic Victorian style home, and the functional replacement cost of the home is less than the actual replacement cost.

Bob purchased an immediate pure annuity of $5,000 per month with a single premium. He died three months later. In this case, Bob's heirs will receive from the annuity: Nothing $5,000 $5,000 per month for nine more months The price Bob paid fo rit, minus $15,000

Nothing

Vickie's house was destroyed by a tornado that passed through her town. She was covered by a standard homeowner's policy. Vickie must fulfill all of the following duties as a precondition of receiving benefits EXCEPT: Give notice immediately to the insurance company or agent. Protect the property from further damage. Obtain estimates of the damage from credible sources. Prepare an inventory itemizing losses to the building and personal property.

Obtain estimates of the damage from credible sources.

All of the following are true regarding Medicare EXCEPT? Part A covers basic hospitalization Part H covers mental health Part D covers prescription drugs Part B is physician services

Part H covers mental health

Which of the following claims will be paid under the liability coverage of the homeowners policy? Injury occurs from towing a rental trailer with the family car. The insured assumed liability under a construction contract before a construction injury occurred. The insured damages a jet ski rented during a vacation. A contagious disease is transmitted from the insured's child to a playmate.

The insured assumed liability under a construction contract before a construction injury occurred.