Your Money and Credit Online Final Noel Morris

What is medicare?

provides health care coverage for individuals over 65 or disabled regardless of income or wealth

HO-4

renters insurance

HO-3

the special form provides HO-5 coverage on one's dwelling and private structures and HO-2 coverage on one's personal property

How long are children covered on health insurance?

up to age 26

T/F Advantages in medical technology, drug prescriptions, and treatments have substantially reduced the cost of the health care in recent decades

False

T/F Always paying cash is helpful in establishing a high level of creditworthiness

False

T/F Fixed-rate loans are desirable if interest rates are expected to fall over the course of the loan

False

T/F Floods are covered under most homeowner's insurance policies?

False

T/F Homeowner's co-insurance requires the insured to carry insurance protection equal to the market value of the house.

False

T/F Large employers are less likely to offer health insurance to their employees than small employers

False

T/F Risk avoidance involves asking an insurance company to take over the risk in exchange for a small payment

False

T/F The primary purpose of life insurance is to provide a tax-advantaged investment plan

False

T/F Using credit is the ideal way to meet basic living needs?

False

T/F all credit cards have annual fees

False

T/F Life insurance proceeds paid to your heirs are not usually subject to state or federal taxes

True

T/F Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students

True

T/F Suppose you carelessly, but unintentionally, knocked someone down a flight of stairs in your home. You would be covered by your homeowner's insurance

True

T/F The cash value of some types of life insurance policies can be used as collateral for loans

True

What is the annual percentage rate (APR)?

True rate of interest over life of a loan, includes all fees and costs

What are factors that affect home insurance?

Type of structure Credit score Location

Part C (Automobile)

Un and underinsured motorist- It is mandatory for insurer to offer, but it can be rejected. -Must have higher limit than underinsured to collect money from company

What is risk?

Uncertainty regarding loss

What is skimming?

Watch for unusual "additions" to credit and debit card readers that can steal your numbers

What is industrial life insurance?

Whole life policies with small face amounts, Used for low-income families

What are the 2 categories of health insurance plans?

Traditional and Managed care plans

(T/F) Living a healthy lifestyle is an example of loss prevention and control

True

HO-2

(broad form): covers the dwelling, other structures, and personal property on a named perils basis

How do you calculate the debt safety ratio?

(total monthly payments / monthly take-home pay) x 100

What are the Five C's of credit?

1. Character 2. Capacity 3. Capital 4. Collateral 5. Conditions

What are the best ways to establish credit?

1. Open checking and savings accounts 2. Get a card and make small purchases

Why do we use credit?

1. To avoid paying cash for large outlays 2. In order to meet financial emergencies 3. Convenience 4. Investment purposes

Example of discount method?

10,000, 8%, 2yr Finance charge = 10000 x .08 x 2 Amt to borrower: 10,000-1600=8400 Apr= 1600/2 / 8400 = 9.5%

What is the goal consumer credit payment amount?

15% of take-home pay

What is the maximum that monthly consumer credit payments should be?

20%

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. a. collateral b. a liability c. insurance d. corporate deposit e. debt

A. Collateral

Which of the following homeowner's policies provides coverage for the damage caused by the accidental discharge of water or steam? a. HO-2 b. HO-8 c. HO-9 d. HO-7 e. HO-1

A. HO-2

Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you: a. pay off the entire balance on or before the due date. b. pay for the purchase within 6 months. c. pay a $5 fee or 3% of the amount charged. d. receive a cash advance. e. make the minimum payment.

A. Pay off the entire balance on or before the due date

Personal property in house is typically covered for:

Actual Cash Value (replacement - depreciation)

What Is personal liability umbrella?

Additional liability coverage for homeowner and auto insurance

What is a Personal Property Floater?

An insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner's policy

What are types of consumer loans?

Auto, furniture, education, personal, consolidation

How do you find APR?

Average annual finance charge/Avg loan balance outstanding Ex: 10,000, 8%, 2yrs Apr= ((8% x 10,0000 x 2)/2)/10,000

What are the consequences of bankruptcy?

Bankruptcy will negatively affect your credit for up to 10 years (no credit for 10 years)

What is chattel mortgage?

Borrower retains possession of property

Which of the following statements regarding fixed-rate loans is true? a. The interest rates on fixed-rate-loans have periodic adjustment dates, at which time monthly payments are adjusted. b. The cost of fixed-rate loans decreases with a decrease in the market interest rate. c. Fixed-rate loans are preferable when interest rates are expected to rise. d. Fixed-rate loans are preferable when interest rates are expected to fall. e. The cost of fixed-rate loans increases with an increase in the market interest rate.

C. Fixed-rate loans are preferable when interest rates are expected to rise

The probability of a loss occurring can be reduced by: a. risk observance. b. loss retention. c. loss prevention. d. insurance. e. risk assumption.

C. Loss prevention

To establish credit, you should first: a. use credit extensively. b. arrange for a large loan from close relatives. c. open savings and checking accounts. d. pay cash for all purchases. e. arrange for a small loan.

C. open savings and checking accounts

What are the 2 type of property and liability insurance agents?

Captive: Represents 1 insurance company Independent: Represents multiple

What is workers compensation insurance?

Compensates workers injured on the job or work related sickness. Premium is paid by employer and covers most costs

HO-5

Comprehensive Form (most common)

What are section I perils?

Comprehensive covers all perils except those specifically excluded, like floods and earthquakes. Name perils policy will only cover what is listed in the policy

What is the decision rule?

Cost of borrowing greater than cost of using cash, use cash to purchase item - If the difference is small, may decide to borrow and maintain a higher level of liquidity

What are section ii perils?

Covers the negligence of the person, excluding slander, contractual or intentional wrongdoing

What are retail charge cards?

Credit cards from department store that build loyalty and have high interest rates

Which of the following will lead to a poor credit rating? a. Opening and using a charge account b. Opening checking and savings accounts c. Making payments ahead of schedule d. Applying for a long-term loan and occasionally being late with a payment e. Discussing with the lender if you foresee difficulty in making a payment

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

The most common use of consumer loans is to: a. buy furniture. b. finance a vacation. c. buy a house. d. purchase a car. e. finance college education.

D. Purchase a car

What is credit and mortgage life insurance?

Decreasing life insurance, pays off outstanding balance if borrower dies before repaid, costly form of coverage

You NEED life insurance if:

Dependents count on your financial support, you have debts such as home mortgage

What are the 3 D/s to protect from identity theft

Deter, Detect, Defend

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed: a. $400. b. $200. c. $600. d. $450. e. $300.

E. $300

As a percent of take-home pay, monthly consumer credit payments should not exceed: a. 15%. b. 10%. c. 5%. d. 25%. e. 20%.

E. 20%

Which of the following is a nondepository institution? a. A savings bank b. A credit union c. A commercial bank d. A savings and loan association e. A consumer finance company

E. A consumer finance company

Which of the following is an improper use of credit? a. Spreading payments within a budget b. Buying a home c. Purchasing a big-ticket item d. Meeting a financial emergency e. Buying a short-lived good

E. Buying a short-lived good

A _____ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit. a. personal b. single-payment c. standard d. buy-down e. consolidation

E. Consolidation

What is the Needs Analysis for life insurance?

Estimate needs and examine available resources

What are some of the benefits of life insurance?

Financial protection for dependents Protection from creditors Tax benefits Vehicle for savings (not best option)

How do you find the finance charge?

First find rate (rate/12) then multiply this by average daily balance

What are not included in standard homeowner policies?

Flood and earthquake

What is the purpose of life insurance?

Help replace loss of income if premature death occurs

What is the discount method?

Interest calculated on beginning principle amount and is subtracted from loan amount and remainder goes to borrower

What is dumpster diving?

Leaving bills in trash

What is collateral note?

Lender retains possession of property

Part A (Automobile)

Liability -For the third party only -BI & PD if insured is negligent - Required by most states (50,100,300,500)k are typical limits

What is a consumer loan?

Loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayment

What is the Truth in Lending Act?

Made credit card companies and loaning to provide all information to clients

Part B (automobile)

Medical Payments- regard of fault (first party) -Will apply when the insured is occupying the vehicle

What are improper uses of credit?

Meet basic living expenses make impulse purchases purchase non-durable goods consistently paying only minimum payments

What is the average daily balance (ADB)?

Method of computing finance charges by applying interest charges to the average daily balance - Excluding new purchases is the most consumer friendly -Including new purchases is most frequently used and has no grace period

HO-8

Modified Form of HO-1

What is the debt safety ratio?

Monthly consumer credit payments/Monthly take-home pay

What is a managed care plan?

Monthly payments made directly to organization that provide health care - designated doctors Charge copayments

What is the Multiple-of-earnings for life insurance?

Multiply annual earnings by an arbitrary number, rule of thumb is 10 - 10 x annual take-home pay

How do you calculate average daily balance?

Multiply number of days to the balance and then add up numbers. Divide total $ by number of days

You do not need like insurance if:

No one depends on you for support, you are a child - Maybe for funeral costs

What should you do if you are unable to pay credit card off?

Notify creditors as soon as possible and be truthful

What is liability insurance?

Offers protection against the financial consequences that may arise from the insured's responsibility for property loss or personal injuries to others

What are blue cross/ blue shield plans?

Originally plans were not insurance but prepaid hospital and medical plans - many are now for-profit organizations that provide health insurance like all other insurance companies

What is a traditional plan?

Pay deductible plus a percentage of eligible costs

Part D (automobile)

Physical damage- Collision and other than collision -optional coverage -ACV (Auto Price Bluebook) -Pays for repairs - deductibles

What is loan repayment?

Prepayment penalty and loan rollover

What is property insurance?

Protection from losses when property is stolen, damaged or destroyed.

What is whole life insurance?

Provides permanent protection for one's entire span of life. Same premium at fixed rate. Pays entire face amount within policy. You have the right to cash value when canceled prior to death

What are factors affecting premiums:

Rating territory use of the automobile Driver's personal characteristics Type of automobile Driving record

What are the 2 goals of the Patient Protection and Affordable Care act of 2010?

Reduce the number of uninsured citizens and reduce the increases in health care costs by providing a 'state based" health insurance exchange in each state

What is actual cash value?

Replacement cost minus the value of physical depreciation

What is term life insurance?

Specified amount of insurance protection for set period of time Benefit paid if insured dies during that time SIMPLEST type of insurance policy

What is Medicaid?

State run assistance program Primarily paid by states with federal assitance

What are the 3 kinds of life insurance policies?

Term life, whole life, universal life

What is subrogation in health insurance?

The legal process that gives the insurer the right to seek recovery from a third party that was responsible for the loss after the insurer has paid the insured for the loss

What is the rule of thumb for buying something on credit?

The product should outlive the payment schedule

What is changing address?

Thieve reroute bills to themselves

What is phishing?

Thieves pretend to be financial institutions on email or pop-ups

What is Co-insurance?

a type of insurance in which the insured pays a share of the payment made against a claim.

The principle of indemnity will prevent: a. an insured from collecting more than what he or she has lost. b. a negligent third party from being held liable for damages if the injured party is insured. c. an insurer from ever waiving its right to subrogation. d. the act of one person from being assigned to another. e. a significant amount of loss control activity.

a. an insured from collecting more than what he or she has lost.

The basic purpose of insurance is to: a. protect you and your family from economic losses. b. protect you and your family from nonfinancial losses. c. shield you and your family from bad decisions. d. supplement the income of you and your family. e. protect the health of you and your family.

a. protect you and your family from economic losses.

One of the key goals of the Affordable Health Care Act of 2010 is: a. to reduce the number of uninsured citizens in the country. b. to penalize employers for employees' job-related illness or injury. c. to underwrite the employee health care coverage on behalf of employers. d. to increase the amount of Social Security taxes. e. to provide health care coverage to employers employing less than 50 full-time employees.

a. to reduce the number of uninsured citizens in the country.

What is loss control?

any activity that lessens the severity of loss once it occurs (seatbelt, not smoking, eat healthy)

What is risk avoidance?

avoiding an act that would create a risk

The personal property floater: a. is available to meet the needs of "innocent" victims of accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists. b. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy. c. is a specialized inland marine policy covering boats and trailers used with boats. d. is an additional amount of insurance equal to a specified percentage of the replacement value of the property. e. covers against liability caused by the ownership or use of items of personal property.

b. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy.

The purchase of insurance is a common form of _____ by the insured. a. risk avoidance b. risk transfer c. loss control d. loss prevention e. risk assumption

b. risk transfer

Section I of a homeowner's insurance policy covers: a. hospitalization costs provided to the insured. b. the dwelling, accompanying structures, and personal property of the insured. c. the reasonable expenses incurred by an insured in helping the insurance company's defense. d. the liability for negligence of the insured. e. the cost of defending the insured.

b. the dwelling, accompanying structures, and personal property of the insured.

HO-1

basic form

During the past few decades, the percentage of our income spent on health care: a. has decreased due to increased regulation and decreased administrative costs. b. has increased due to advanced demand-and-supply distribution of health care facilities. c. has increased due to an aging U.S. population. d. has decreased due to the reduction in health care costs. e. has decreased due to costly advances in medical technology.

c. has increased due to an aging U.S. population.

Section II of a homeowner's insurance contract covers: a. damages caused by people renting the property. b. living expenses while an insured's house is repaired. c. paying successfully pursued liability claims against an insured. d. hospitalization costs for the insured. e. damages caused by a covered peril

c. paying successfully pursued liability claims against an insured.

Insurance companies use actuarial data to measure the: a. gross productivity of a given population. b. wealth of a given population. c. risk of loss for a given population. d. age of a given population. e. creditworthiness of a given population.

c. risk of loss for a given population.

Insurance underwriting is best described as: a. a function most often performed by an actuary. b. a set of activities used to identify the risk and rewards of investing an insured's funds on marketable securities. c. the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums. d. a process of developing taxing structures for insurance policies. e. production-related activities performed primarily by agents on the field.

c. the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.

HO-6

condominium owners

_____ loans do not have to be repaid until after you graduate from college. a. Only Direct b. Only Perkins c. Direct and Parent Loans for Undergraduate Students (PLUS) d. Direct and Perkins e. Perkins and Parent Loans for Undergraduate Students (PLUS)

d. Direct and Perkins

Which of the following homeowner's policies is best suited to a renter of an apartment? a. HO-2 b. HO-8 c. HO-3 d. HO-4 e. HO-1

d. HO-4

Funds for Medicare benefits come from: a. the health care service organization. b. the co-payment for health care services by the insured. c. monthly payments by users directly to the health care service organization. d. Social Security taxes paid by covered workers and their employers. e. the premiums paid by the employers for the employees.

d. Social Security taxes paid by covered workers and their employers.

Which of the following statements regarding workers' compensation insurance is true? a. Workers' compensation insurance includes only rehabilitation expenses. b. Employees are required to bear half of the entire cost of workers' compensation insurance. c. Employers who file the most claims pay the lowest premiums on the insurance coverage. d. Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes. e. The federal government is responsible for workers' compensation legislation and regulation.

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

Credit unions lend money to qualified people who are their: a. suppliers. b. policyholders. c. stockholders. d. members. e. employees.

d. members

Which of the following statements regarding medical insurance costs in the United States is true? a. Health insurance does not pay for routine medical costs. b. Increased regulation and decreased administrative costs have reduced medical insurance costs in the United States. c. Advances in medical technology have decreased medical insurance costs. d. Due to the financial importance of health insurance, nearly 50% of the U.S. population has health insurance. e. A poor demand-and-supply distribution of health care facilities and services has increased health care costs.

e. A poor demand-and-supply distribution of health care facilities and services has increased health care costs.

It is good to use credit for: a. dining at a restaurant. b. buying groceries. c. visiting a tourist destination. d. paying rent for your home. e. buying a car.

e. Buying a car

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? a. Medicare b. Medicaid c. Point-of-service (POS) plan d. Workers' compensation e. Blue Cross/Blue Shield

e. Medicaid

Negligence occurs when someone: a. fails to act as an insured. b. is not insured. c. admits an error. d. is more than 18 years of age. e. fails to act in a reasonable manner.

e. fails to act in a reasonable manner.

Insurance companies make profit by: a. charging consultation fees to the insured. b. avoiding the risk of loss of the insured. c. giving less than the amount mentioned in the policy to the insured. d. charging underwriting fees from insurance agents. e. paying out less than the sum of the premiums and the earnings on them.

e. paying out less than the sum of the premiums and the earnings on them.

People under the age of 65 are covered by the Medicare health insurance plan if: a. they agree to pay a negotiated fee for medical services. b. they have been denied health insurance because of a pre-existing condition. c. they are injured on the job or become ill through work-related causes. d. they volunteer to pay premiums. e. they receive monthly Social Security disability benefits.

e. they receive monthly Social Security disability benefits.

From the standpoint of a person buying insurance, the central purpose of insurance should be: a. to profit from uncertain future events. b. to collect for all accidental losses. c. to contribute to charitable purposes. d. to reduce the cost of taking small risks. e. to transfer the risk of serious losses.

e. to transfer the risk of serious losses