Financial Planning exam 2
What should be considered before someone cosigns a loan with someone else?
Ability to make payments. Request for a copy of overdue-payment notices. Increased personal liability. The state law.
How could the tax benefit and risk of a home equity loan best be described?
Interest is tax deductible, but default could mean you lose the home.
True or false: It is important to evaluate the reason for taking a home equity loan.
True
Typically, qualified cosigners:
are able to pay loan payments.
To improve your credit score, it is important to:
avoid applying for new credit cards. pay your bills on time. understand the computation of outstanding debt.
A smart card is also known as
chip card
Credit card fraud affects:
credit card holders.
Which of the following are disadvantages associated with renting an apartment?
restrictions on pets (no pets) and certain activities limitations on remodeling no tax benefits
People who shop impulsively and often use a great deal of credit are called
shopaholics
What is consumer credit based on?
the willingness and ability to pay
Which of the following is an example of using credit to better your life financially?
to attend college
Which of the following are the common terms (years) of home mortgages?
10 15 20 30
Which of the following is NOT true?
Most credit card companies do not offer a grace period
Closed-end loans are_________loans repaid within a(n)_______time frame with equal payments.
Single Specified
Which of the following are advantages of home ownership?
The ability to borrow against the equity in the home. Income tax savings because of mortgage interest. Stability of residence and a personalized living location
If you purchase a new but defective item that the business will not accept as a return, what does the FCBA require?
The credit card company will allow you to withhold payment on such an item because it is defective.
What are some disadvantages of credit?
The temptation to overspend. Future income may decrease.
Security features currently being added to credit cards to deter counterfeiting include:
a holograph that changes color and image. ultraviolet ink on the company logo.
With a maxed-out credit limit, paying the minimum credit card payments each month is an example of:
a serious long-term financial problem.
If you make an offer on a home, a counteroffer indicates:
a willingness to negotiate a price settlement.
An example of_________-end credit is an automobile loan, whereas an example of_________-end credit would be a credit card.
closed open
What are responsible purchases with a home equity loan?
home improvements educational expenses
What are some of the disadvantages of new home ownership?
limited mobility when compared to renting significant financial commitment higher living expenses than renting
The Fair Credit Billing Act provides that you may withhold payment on damaged or defective goods or poor services you have purchased with a credit card as long as you have:
made a sincere attempt to resolve the problem with the merchant.
What type of credit is a home equity loan?
open-end credit
Having a place to call your own, the stability of a residence and a personalized living space all contribute to a feeling known as_____of ownership
pride
Automobile insurance covers_____and personal damage (bodily injury) caused by the policyholder's car.
property
A number of factors can impact the amount you can spend on a home including current mortgage ________ , Incorrect Unavailable, the size of the down _________ , Correct Unavailable you can make, and your income.
rates, payment
When making online purchases, you should:
use a secure browser, keep a record of the purchase, and review your statement.
Which of the following factors have an impact on the amount you can spend to acquire a home of your own?
your income (salary, wages, investment income, etc.) the amount of the down payment you can make your current living expenses
Which of the following financial losses can you insure against?
-catastrophic illness -personal and property damage when driving -loss of home or belongings
Private mortgage insurance (PMI) is required when the down payment is less than:
20%
Which of the following statements is not true?
Bankruptcy courts treat gift cards as secured debt.
Home equity loan interest is only tax deductible as long as the proceeds are spent on education with the risk being that a default on the equity loan could mean foreclosure.
False
True or false: Credit cards are not particularly common among consumers.
False
True or false: Throwing away all credit card documents is a way to prevent fraud.
False
True or false: You should deplete your savings to finance a purchase.
False
When someone steals your personal or sensitive information, this is called
Identity theft
Why should you care how to use credit?
If you misuse credit, you will pay for it with future income, and it could take many years to pay off the debt.
Why is it not good to spend your entire monthly income on credit card bills?
It is not good if you have no money left for emergencies.
Which of the following are advantages of owning a previously owned home?
Pride of ownership Tax benefits
Which of the following are possible disadvantages of owning a previously owned home?
Significant financial commitment Possibility of significant repairs Limited mobility
What is the difference between consumer credit and business credit?
The difference is the way in which the credit is used.
Why is paying only the minimum payment detrimental?
The longer it takes for you to pay off a balance, the more finance charges you pay on an item.
What are the advantages to overspending with credit?
There are no real advantages to overspending on credit.
The most important thing you can do to improve your credit score is to pay your bills on_____
Time
Which of the following are the names of credit bureaus?
TransUnion Experian Equifax
As a general rule, it may be wise to refinance when the interest rates on mortgages drop at least 1 percentage point below your current mortgage rate.
True
People who are financially able to buy a home may still choose to rent to avoid the time and money commitment required to maintain a house.
True
True or false: A reliable way to see if you can afford a loan is to determine what you will give up to make the monthly loan payment.
True
True or false: Automobile insurance covers property and personal damage caused by the policyholder's car.
True
True or false: Feeling bored and purchasing all 25 sets of dishes from a television shopping channel, just to have them, is a sign of compulsive shopping.
True
True or false: Home owner's insurance covers damages to your home due to many perils, such as fire and windstorm, and it also covers personal injuries received by persons on your property.
True
True or false: Home ownership can limit your mobility because real estate can be difficult to sell.
True
True or false: The drawback of an ARM mortgage is that monthly payments could rise in the future.
True
True or false: Consumer credit is different than business credit.
True Correct. Business credit is for business operations. Consumer credit is used for the consumer's personal needs.
Why should you consider the advantages and disadvantages before using credit?
because every person's situation is different (e.g., current debt, future income, tendency to overspend), and credit should be used in moderation because there are negative effects that can lead to bankruptcy if you are not careful with credit because credit can be a good thing or bad thing in a person's life
Renting increases mobility by:
decreasing the amount of time one is required to be financially liable for housing. decreasing financial investment in a home. making it easier for people to get up and move.
Negative implications of using too much credit include
default, loss of creditworthiness, bankruptcy
Renting makes job transfers
easier
Which of the following are advantages of renting a house?
easy to move (mobility) minimal financial commitment
Who is most likely to benefit from a reverse mortgage?
elderly home owners who can take the funds in the form of a tax-free loan to live on and pay back the loan when the home is sold
An insurance policy requires the payment of an annual_____as part of a contract to cover the risk. This is found in the discussion of what is insurance.
fee or premium
Personal preferences are the foundation of a housing decisions, but__________ factors will modify the final choice.
financial
Home insurance covers the policyholder's place of residence and its associated Blank______, such as damage to personal property and injuries to others.
financial risks
As a home owner versus a renter, you must be prepared to pay additional costs of home ownership, such as
home improvements maintenance real estate taxes
Positive implications of the use of credit include
improved credit score, increased creditworthiness
What effect will paying your credit card balance on time have on your credit score?
increase your score
The protection against possible loss that gives you peace of mind is called
insurance
Renting increases mobility by:
making it easier for people to get up and move. decreasing the amount of time one is required to be financially liable for housing. decreasing financial investment in a home.
Which of the following are the advantages associated with renting an apartment?
minimal financial commitment easy to move (mobility) less maintenance than owning
The advantages of owning a newly built home include
no previous owner, so you know the history of the home pride of ownership tax benefits
Which of the following are disadvantages of renting a house or an apartment?
no tax benefits limitation regarding remodeling
One convenient aspect of using credit is that multiple charges can be accumulated and paid in one monthly
payment
To determine how much you can afford to spend on a home, have a loan officer at a mortgage company or other financial institution ______ you
prequalify
An insurance company shares the______and assumes financial responsibility for losses from an insured risk. This is found in the discussion of what is insurance toward the beginning of the chapter.
risk
Your budgeted financial obligations help dictate the appropriate amount to_________on housing.
spend
A card that is usually prepaid and tracks the balance available for you to spend is a
stored value card
The difference between a smart card and a regular credit card is:
the metallic chip embedded on the front of the smart card.
Common sources of down payment funds to purchase a home include:
the sale of investments. assistance from relatives. personal savings.
A method to confirm that you can pay for the loan is:
to have enough take-home pay to cover monthly expenses, the loan payment and other expenses.
The typical out-of-pocket payment for a stop-loss provision ranges from:
$4,000 to $6,000.
Stop-loss is a provision under which an insured pays a certain amount, after which the insurance company pays______% of the remaining covered expenses.
100
Most policies pay______ of expenses above the deductible amount; the policyholder pays the rest.
75% to 80%
A "good" health insurance plan pays at least______ percent of out-of-hospital expenses once a yearly deductible for the individual and family have been met.
80
Group health insurance plans represent about______ of all health insurance plans.
90%
______costs represent 11% of health care costs in the United States.
Administrative
What are ways to protect against credit card fraud?
Reviewing your billing statements. Don't give your card number over the phone unless you initiate the call. Shred anything with your account number on it.
True or false: Paying for a purchase over a period of time is more costlier than paying for them in cash.
True
Which of the following should you consider when determining whether you can afford a loan?
your monthly pay your monthly expenses funds remaining for other expenses
What are some of the factors that have led to increasing health care costs?
An increased number of crimes and accidents The use of expensive technologies
A good health insurance policy provides which of the following?
At least $1 million lifetime maximum for each family member. A stop-loss provision so the policyholder will pay no more than $6,000 out of pocket a year.
Medicare Part_____covers many doctors' services and other health services not covered by Part A.
B
Which of the following risks are covered by homeowner's insurance?
Coverage for the financial risks of damage to personal property Coverage for your place of residence Coverage for the financial risks associated with injuries to others
The law that protects consumers by setting standards for correcting billing mistakes and allowing customers to avoid paying for defective merchandise is called the
Fair Credit Billing Act
True or false: Health insurance coverage is only available from private insurance companies.
False
True or false: Increasing your deductibles will increase your premiums for your homeowner's policy.
False
True or false: The Consolidated Omnibus Budget Reconciliation Act of 1986 is applicable and extends medical coverage to all employees of federal government agencies.
False
True or false: When cosigning a loan, you are not taking actual responsibility for payments. Your job is just to make the original borrower pay.
False
True or false: Your homeowner's insurance covers damage to your home, other structures on your property, and your automobile.
False
Which home insurance policy form is used for covering perils such as flood, earthquake, war, and nuclear accidents?
HO-3
What are the effects of credit card fraud?
Higher prices for consumers, higher interest rates for consumers
Which of the following are advantages of home ownership?
Income tax savings because of mortgage interest. Stability of residence and a personalized living location. The ability to borrow against the equity in the home.
What does the Fair Credit Billing Act (FCBA) do?
It protects consumers with billing mistakes and provides assistance in avoiding payment for defective merchandise.
What is the day-in, day-out assistance that you might need if you ever have an illness or disability that lasts a long time and leaves you unable to care for yourself?
Long-term care
Which part of Medicare helps pay for doctors' services and a variety of other health services and supplies?
Medical (Part B)
insurance makes up the difference between Medicare payments and medical costs not covered by providing supplemental insurance that can be purchased.
Medigap
Which insurance supplements Medicare by filling the difference between Medicare payments and medical costs not covered by Medicare?
Medigap insurance
_______damage to a property is caused by events such as fire, wind, water, and smoke.
Physical
Under COBRA, employees of which of the following types of organizations are covered?
Private companies Local government State government
Which of the following is a disadvantage of paying the minimum payments on credit cards?
The payment pays for interest and very little of the balance due.
Which of the following is not true about hospital expense coverage?
These policies pay all costs of being hospitalized with no limits.
Health insurance is one way people protect themselves against economic losses due to illness, accident, or disability.
True
True or false: Credit cards can be convenient since you need a credit card to make a hotel reservation.
True
True or false: One drawback of an adjustable-rate mortgage (ARM) is that the monthly payment may increase in future years if interest rates increase.
True
True or false: The base computation for a home equity loan is the current market value of the home less the amount you still owe on your mortgage.
True
The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 requires employers to offer employees and dependents, who would otherwise lose group health insurance, the option to continue their group health coverage for:
a certain amount of time.
What might a person who is uninsured experience during times of illness and injury?
a financial burden
The Health Insurance Portability and Accountability Act of 1996 provides:
a parent with a sick child can move from one health plan to another without paying more for coverage than other employees do. new standards so workers would not lose health insurance if they change jobs
Disability income insurance protects your most valuable asset. which is your:
ability to earn income.
The method of claim settlement that pays you based on the current replacement cost of an item less depreciation is called the
actual cash value method
Many mortgage companies and banks will prequalify you for a mortgage loan by determining how much you can______for a home mortgage payment. This is a one-word answer.
afford
The term consumer credit describes:
amounts owed on credit cards. loans to families for automobiles.
Which of the following is not a valid reason for using credit?
borrowing for everyday expenses
A home equity loan can be seen as:
borrowing money against the value of your house.
A provision under which the insurer and insured share the covered losses is called
coinsurance
The______ is a method of integrating the benefits payable under more than one health insurance plan so the benefits received from all sources are limited to 100% of allowable medical expense.
coordination of benefits
Which of the following best defines homeowner's insurance?
coverage for your residence and its financial risks
The drawback to interest-only mortgages is that the loan balance does not____and therefore the only equity build-up occurs if the home value____
decrease increases
The most common sources for a(n))___payment for a home purchase include personal savings, pension plan funds, sale of investments, and assistance from relatives. (Enter only one word per blank.)
down
In a group health insurance plan arrangement,_____and______ are most likely to pay for the cost of health care.
employees employers
The federal Consolidated Omnibus Budget Reconciliation Act of 1986 requires many employers to offer group health benefits to:
employees and dependents who would normally lose group health insurance.
Collision insurance pays for the damage to an automobile as a result of an accident regardless of
fault
A______ is state legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident.
financial responsibility law
A personal property___for a homeowner's insurance policy requires a detailed description of the items covered and periodic_____to verify the current value
floater appraisal
Most homeowner's policies cover many perils, but not:
flood
The Health Insurance Portability and Accountability Act of 1996 provided federal standards for____renewability. This is found in the discussion of what is health insurance. (Enter one word per blank.)
guaranteed
Defective house wiring is an example of a(n)______that increases the chances of fire.
hazard
A home located in an area where there is a history of high claims will have______premiums
higher
If more claims have been filed in an area, home insurance rates for people living there will be
higher
Health insurance is one way people protect themselves against economic losses due to
illness disability accident
The protection against possible loss that gives you peace of mind is called______
insurance
______ is the process of paying a premium in exchange for financial protection.
insurance
A household______is a list or other documentation of personal belongings, with purchase dates and cost information.
inventory
Hazards increase the likelihood of a(n)_____through a peril.
loss
Comprehensive major medical insurance policies are complete insurance policies offering a very___deductible.
low
medical expense insurance pays most of the costs exceeding those covered by the hospital, surgical, and physician expense policies.
major
Which type of insurance pays the larger expenses of a serious injury or long illness, including those covered by the hospital, surgical, and physician expense policies?
major medical expense insurance
Health insurance includes:
medical expense insurance. disability income insurance
Prior to age 60 disability is:
more likely than death
Surgical expense insurance pays part or all of surgeons' fees for a(n)
operation
Which of the following are covered by a homeowner's policy?
other structures personal property house
When you buy a car you have also bought a(n)____whenever you drive it.
peril
Fire, windstorms, robbery, accidents, and premature death are all________that can cause a loss. This is found in the discussion of types of risks.
perils
You inherited a $25,000 ring from your grandmother. You should cover it with a(n)
personal property floater
Which type of insurance provides benefits for doctors' fees for nonsurgical care, X-rays, and lab tests?
physician expense insurance
The main influences on the premium paid for home and property insurance include:
policy type. type of structure. location of home.
The benefits of an ARM mortgage may include the following options:
possible future rate decreases possible future payment decreases lower initial rates than fixed rate loans
An insurance policy contract requires that the policyholder pay an annual amount, usually called a(n)______to cover the risk. This is the cost of the policy.
premium
Similar to car and life insurance, the individual pays a specified___-for health insurance in exchange for some degree of financial assurance.
premium
The main influences on the_______paid for home and property insurance include location, type of structure, and policy type. (Enter only one word per blank.)
premium
Dental expense insurance provides reimbursement for the expense of services and supplies and encourages___dental care. (Enter one word per blank.)
preventive
Key provisions in the Patient Protection and Affordable Care Act of 2010 include
prohibiting lifetime caps on coverage providing tax credits for small businesses to make employee coverage affordable banning companies from dropping people when they get sick
Health insurance provides_____to alleviate the financial burden individuals suffer from illness or injury.
protection
Personal risk, property risk, and liability risk are called_______risk since there would be a chance of loss only if the specified events occurred.
pure
When there is only a chance for loss if a specified event occurs, a risk is called
pure risk
The method of settling claims that pays you the full cost of repairing or replacing the item is called the
replacement value method
_____is the chance of loss or injury.
risk
Hospital expense insurance pays part or all of hospital bills for __-, board, and other charges.
room
Health insurance coverage is available from_____
service plans government programs health maintenance organizations private insurance
An insurance company is a risk-______business that agrees to pay for losses that may happen to someone it insures. This is found in the discussion of what is insurance at the beginning of the chapter
sharing
When a risk includes a chance of either loss or gain, it is called:
speculative risk.
The concept of____means that your insurance company may try to recover the costs of your repairs through the other party's automobile insurance company.
subrogation
Renters have fewer responsibilities than home owners because:
tenants are not responsible for maintenance or repairs.
When evaluating a home equity loan, which of following should be examined?
terms and condition changes hidden fees whether payments are applied to interest only
Interest on interest is an example of:
the compounding effect of the cost of credit.
Which of the following captures the main factor to consider when refinancing a loan at a lower rate?
the cost of refinancing versus the benefits (savings) of lower monthly payments
Under the actual cash value (ACV) method, the payment you receive is based on:
the current replacement cost of a damaged or lost item less depreciation.
In the United States, we spend____________ as much on health care as the average for the 24 industrialized countries in Europe and North America.
twice
When evaluating a home equity loan, which of following should be examined?
whether payments are applied to interest only, terms and condition, changes hidden fees
