(CHAPTER 8)

An individual who purchases insurance is

B. A policyholder

Andrew is applying for insurance for his new home. Which of the following is correct?

C He should use the replacement value method for settling claims to receive the full cost of repairing or . replacing his personal belongings.

Sally was driving her own car and collided with a pick-up truck. Sally sustained $150,000 in injuries and her passenger sustained $1,000 in injuries. If her coverage was 100/300/50, what are the total medical expenses the insurance company would pay for this accident?

C. $101,000 Sally's injuries would be covered to $100,000. Her passenger would be covered in full at $1,000. Total coverage = $100,000 + $1,000 = $101,000

Henry was driving at dusk and hit a deer running across the road. His damage would be covered under

C. Collision

Sammy was driving on the highway and drove over a piece of metal that was on the highway. The metal punctured her gas tank. This damage would be covered under her

C. Collision

Which of the following should reduce your auto insurance premium?

C. Get good grades in college

Anything that pay possibly cause a loss is called a

C. Peril

If you choose to insure your home or your vehicle, you are using

D. Risk shifting

Which of the following is NOT correct?

D. The number of small claims you have should not affect your premium

Vincent is applying for insurance for his new home. Which of the following is correct?

D.His personal belongings should automatically be covered with his home at 55 percent to 75 percent of his home's insured amount.

Which of the following is correct?

D.One question that should be asked when developing a risk management plan is: What do I need to insure?

Personal liability coverage does NOT protect

E. A housekeeper

All of the following are acceptable types of documentation for a household inventory except

E. A listing of items and their details in your memory.

Homeowner's insurance includes all of the forms listed except

E. HO-8

Barnaby is applying for insurance for his new home. Which of the following is correct?

E. His policy should automatically increase coverage as construction costs rise.

An assigned risk pool is a method of calculating the insurance premiums for various groups of drivers.

FALSE An assigned risk pool includes people who cannot get motor vehicle insurance due to a poor driving record.

Another name for a homeowner's insurance policy is an umbrella policy.

FALSE An umbrella policy is used in addition to a homeowner's policy.

Collision insurance covers your vehicle against risks such as falling objects and hail.

FALSE Comprehensive physical damage coverage protects against these risks.

An example of a peril is defective wiring.

FALSE Defective wiring is a hazard.

Homeowner's insurance excludes detached structures.

FALSE Homeowner's insurance includes detached structures such as a garage or toolshed.

Uninsured motorist's protection automatically covers you and your family members as well as damage to the vehicle itself.

FALSE In most states, it does NOT cover damage to the vehicle itself.

Angela should decrease her deductible from $1000 to $250 in order to reduce her home insurance premium

FALSE Increasing the deductible should decrease the premium.

It is illegal to use a credit score to determine the premium to charge an individual.

FALSE Insurance companies may consider the credit score when deciding whether to sell, renew, or cancel a policy and what premium to charge. However, an insurer cannot refuse to issue you a home or auto insurance policy solely based on your credit report.

Samuel should buy insurance in order to eliminate his risk.

FALSE Insurance is a risk-sharing business; one cannot eliminate risk with insurance.

Sam's house should be insured for the amount he originally paid for it.

FALSE It should be insured for the cost to rebuild or repair the home, not the original cost.

A household inventory should be stored in a home office.

FALSE It should be stored in a secure location, such as a safe deposit box.

Emergency road service coverage includes coverage for a tow to a service station as well as repairs to make the vehicle drivable.

FALSE Once the vehicle arrives at the repair shop, insurance does not cover repair costs.

Jim and Sandy are setting up their insurance program. One of their goals should be to reduce the possible loss of income due to fire or theft.

FALSE One goal should be to reduce the loss of income caused by premature death, illness, accident, or unemployment. Another goal should be to reduce the loss of property caused by perils, such as fire or theft, or hazards.

Every state in the United States has a law requiring people to carry motor vehicle insurance.

FALSE Recently, more than 45 states had laws; however, every state has a financial responsibility law that requires drivers to prove that they can pay for damage or injury caused by an automobile accident.

A landlord is responsible for paying renter's insurance.

FALSE The renter is responsible.

Motor vehicle insurance falls into two categories: protection for bodily injury and protection for property damage.

TRUE

What is the difference between a pure risk and a speculative risk?

A pure risk is accidental and unintentional. Although no one can predict whether a pure risk will occur, it is possible to predict the costs that will accrue if one does. This type of risk is insurable. A speculative risk is not insurable. It carries a chance of either loss or gain. Winning the lottery and starting a small business are two examples.

Homeowner's insurance covers all except

A. A detached garage B. Trees and shrubs C. A tool shed D. Personal property E. All of these are covered

Medical payments coverage applies to medical expenses of

A. Anyone in your vehicle, including you

When Stanley was visiting Elaine, he tripped on her front porch step and sprained his ankle. His injuries were covered by

A. Elaine's medical payments coverage.

Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The skateboard is a

A. Hazard

Yogi is applying for insurance for his new home. Which of the following is correct?

A. He should base the amount of insurance on the price to rebuild or repair it.

The most common risks are

A. Personal risks B. Property risks C. Liability risks D. All of these are common risks

Patrick has an old beater car and wants to keep his insurance costs down. In order to minimize the financial impact of an accident he may cause he should, at a minimum, carry which type of insurance?

A. Property damage liability

If you choose to avoid the risk of a traffic accident by not driving to work, you are using

A. Risk avoidance

Tom wanted to receive as many discounts from his home insurance as possible. Which of the following would NOT provide a discount?

A. Smoke detector. B. Fire extinguisher. C. Dead-bolt locks. D. Alarm systems. E. All of these should provide a discount for Tom.

Which of the following is NOT a type of motor vehicle insurance available to drivers?

A. Wage loss insurance B. Emergency road service coverage C. Rental reimbursement coverage D. All of the above may be available to drivers

Which of the following questions should one ask when developing a risk management plan?

A. What do I need to insure? B. How much should I insure something for? C. What kind of insurance should I buy? D. Who should I buy insurance from? E. All of the questions should be asked when developing a risk management plan.

Cheyenne has a home insured for $400,000. It would cost $420,000 to rebuild her home. If she has home insurance that provides personal property coverage at 70 percent of value, how much of her belongings would be covered?

B. $280,000 The coverage is $400,000 * 70% = $280,000.

Homeowner's insurance covers all except

B. A diamond necklace valued at $25,000

Zach is applying for insurance for his new home. Which of the following is most correct?

B. He should insure the building for full replacement coverage.

Cindy was contacted by her home insurance agent to discuss ways to decrease her premium. Which of the following should NOT reduce her premium?

B. Increasing the amount of coverage

An insurance company will

B. Insure pure risk, but not speculative risk

Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The fact that she didn't put away the skateboard is called

B. Negligence

The failure to take ordinary or reasonable care to prevent accidents from happening is called

B. Negligence

Paul was driving his kids to a piano lesson in a 2005 minivan. While driving, he was hit by an uninsured motorist. Although Paul and his kids had only minor injuries, their vehicle was totaled. Based on this information, which of the following is correct?

B. Paul's uninsured motorist's protection should cover medical expenses for Paul and his kids

Madeline had a severe allergy attack and crashed her car into a telephone pole while sneezing. The damage to the telephone pole would be covered under Madeline's

B. Property damage liability

Which of the following is NOT correct about renter's insurance?

B. Renter's insurance covers the building and other structures on the site.

If you choose to wear your seatbelt, you are using

B. Risk reduction

An insurance program

B. Should change along with needs and goals C. Should minimize personal property and liability risks

Liability is defined as:

B. The legal responsibility for the financial cost of another person's losses or injuries

If you have a loss due to a flood

B.You need to have purchased special coverage if you live in an area that has frequent floods in order to be covered.

Barbara left a skateboard on her front steps. A windstorm then swept the skateboard up and through her window. The windstorm is a

C. Peril

Insurance that covers valuable items, such as an expensive harp, is called

C. Personal property floater

What is the fee that a policyholder pays when an insurance company agrees to take on the risk?

C. Premium

If you choose to take responsibility for negative results of a risk, you are using

C. Risk assumption

Insurance allows someone to

C. Shift risk

Various states are trying to reduce the time and cost of settling vehicle injury cases. One of those alternatives is

C. Using the no-fault system

Last month, some of your friends were injured in an accident. Their total injuries were as follows: -Brenda - $75,000 • Raquel - $150,000 • Louis - $25,000 Coverage was 100/300/50. What was the total medical coverage in this accident?

D. $200,000 Since coverage is capped at $100,000 per person and $300,000 for the accident, Brenda and Louis are fully covered. Raquel's coverage would be limited to $100,000. Total coverage = $75,000 + $100,000 + $25,000 = $200,000.

Motor vehicle crashes cost more than ______ in lost wages and medical bills every year.

D. $240 billion

Homeowner's insurance covers all except

D. Automobiles

Motor vehicle coverage typically includes all except

D. Bodily injury liability of all expenses, no matter the cost, for the most injured

Home insurance policies include coverage for all except

D. Business property

Al left his vehicle parked on the street in the front of his house when he went on vacation. While he was gone, his street flooded and his car was severely damaged. This damage would be covered under

D. Comprehensive physical damage

Zachary lived in a neighborhood that was known for gang activity. One day, he noticed that his car had been vandalized. This damage would be covered under his

D. Comprehensive physical damage.

The best place to keep a household inventory is

D. In a safe deposit box

The two basic types of risk that people face regarding their personal property are

D. Physical damage and damage caused by criminal behavior

Which of the following is NOT one of the commonly used general risk management techniques?

E. Increase risk

Sandra is contacting several insurance companies to compare coverage for her home. Which of the following should NOT affect her premium?

E. Location to a school

Personal property insurance covers

E. Personal property items up to 55 - 75 percent of the insured value of the home

A policy that provides supplemental your basic personal liability coverage is called a(n)

E. Umbrella policy

Amber had permission from Bradley to borrow his car to run some errands. Unfortunately, while Amber was driving, she looked down to change songs on her iPod and sideswiped a car and hit a bicyclist. Based on her experience, which of the following would be true?

E.Amber's insurance policy should cover any property damage claims since she was driving Bradley's car with his permission.

Timothy was driving his friend Nick to football practice. While driving, he was hit by driver who had coverage of 100/300/50. Tim and Nick each suffered some physical injuries. Based on this information, which of the following is correct?

E.The policy would provide a maximum of $100,000 for each of the injured, and no more than $300,000 for injuries sustained in the accident.

Insurance coverage for a rental is more expensive than insurance coverage for a mobile home.

FALSE Renter's insurance is relatively inexpensive. Mobile home insurance is quite expensive.

Risk avoidance is an organized plan for protecting yourself, your family, and your property.

FALSE The definition is for risk management.

Once a risk management plan is in place, the insurance programs that were set up should remain the same even as one's family needs change.

FALSE The insurance programs should grow or shrink as the protection needs change.

The National Flood Insurance Program makes flood and earthquake insurance available for all homeowners.

FALSE This program is available in some places.

Caroline was found liable in an accident. This was probably not due to negligence on her part.

FALSE Usually, liability is because of negligence.

One way to keep auto insurance rates down is to insure each vehicle you own with a different insurer.

FALSE You may receive a multi-vehicle discount if you insure two or more vehicles with the same company.

A brick home should cost less to insure than a similar structure made of wood.

TRUE

A homeowner policy provides coverage for additional living expenses after a fire.

TRUE

An example of a hazard is defective house wiring.

TRUE

An example of a peril is a robbery.

TRUE

An important question that should be asked when setting up an insurance program is: "What do I need to insure?"

TRUE

An insurance claim is a request for payment to cover financial losses.

TRUE

If you drive a model of vehicle that is frequently stolen, you should expect to pay a higher premium for your auto insurance.

TRUE

If you live in a city, you should expect to pay a higher premium for your auto insurance than someone who lives in a rural area.

TRUE

If you need information to compare Acme Home Insurance and Zebra Home Insurance, you should contact the state insurance commissioner or a consumer organization that deals with insurance.

TRUE

Risk management is an organized plan for protecting yourself, your family, and your property.

TRUE

Robby fell on a piece of ice on Peter's front steps and broke his arm. This is an example of a liability.

TRUE

The actual cash value method of settling claims is based upon the replacement cost of an item less depreciation.

TRUE

The first step to setting up an insurance program is to set insurance goals.

TRUE

Insurance is protection against possible financial loss.

TRUE Insurance is protection against possible financial loss.

Mortgage lenders require that homeowners purchase home insurance.

TRUE Lenders require home insurance.

Explain two ways that someone may choose to manage risk. Include an example of each method.

The following are acceptable answers: Risk avoidance - not taking an action that could be risky. Example: not driving a car to avoid a traffic accident. Risk reduction - take action to decrease the likelihood that risks will cause you harm. Examples: wear a seatbelt and install fire extinguishers. Risk assumption - take responsibility for the negative results of a risk. Example: self-insurance to cover a loss. Deciding to NOT purchase collision insurance for an old car. Risk shifting - insurance. Example: Purchasing insurance for an auto or a home.