HDFS 2483 --- CHAPTER 9,10,11

Which of the following are ADJUSTMENTS to gross income?

- IRA contributions - Penalties for early withdrawal of savings - Keogh Plans

Which of the following are part of the requirements of a dependent?

- The dependent must be under 19 year old unless a full-time student. - The dependent must be under 24 year old if a full-time student. - The dependent must reside in your home or be specified relative and meet citizenship requirements. - You provide more than 50% of the dependent's support.

Several incentives exist to reduce premium costs on home owner's policies including:

-installing smoke detectors and fire extinguishers -installing security alarm systems -Maintaining a good credit rating

The majority of people who draw on Medicare are _______ years of age or older.

65

The rule of thumb on how much life insurance to have is between ______ and ______ times your annual salary.

7 and 10

Medicare Part ___ covers many doctors' services and other health services not covered by Part A.

B

Select the types of investments for Tier III (high-risk, high-potential return) from below:

Commodities Futures

Which of the following best defines home owner's insurance?

Coverage for your residence and the associated financial risks

Managed care is offered by which of the following?

Health maintenance organizations Preferred provider organizations Point-of-service plans

When in the independent life stage of investing, a ________ is a recommended way to save for retirement.

Roth IRA

The highest insurance rates are levied on sports cars, muscle cars, and _____ vehicles.

sport utility

Medicaid is funded by:

state and federal funds

Medicaid is administered by ______ but is funded by a combination of state and _____ funds

states; federal

In targeted and automatic asset-allocation mutual funds, as one gets closer to retirement the account shifts the asset allocation from ______ to _______.

stocks to bonds

Term life insurance is:

temporary insurance

Liability auto insurance protects you against financial loss when you damage:

the property of others

The amount of homeowner's insurance should cover

the value of the house

Market risk is the fluctuation of stock and bond prices due to the behaviors of investors in the marketplace.

true

True or false: Adjusted gross income is gross income reduced for such things as IRA contributions and alimony payments.

true

True or false: Interest rate risk is the result of changes in the interest rates in the economy.

true

True or false: Life insurance is one of a few ways to provide income.

true

True or false: When setting aside money in saving instruments, you are setting aside funds in a secure, no-risk instrument.

true

A person would file as head of household if he or she is:

unmarried with a dependent child

Salary and wages are reported on:

w-2 forms

Tax-deferred means that your income is taxed ________

when funds are withdrawn

A plan where the policyholder pays the same premium for as long as they live is called a(n):

whole life policy

If you are a young married couple with no children, you will most likely choose investments:

with higher risks

The amount of money or the value of property that can be gifted each year without being subject to federal gift taxes is:

$14,000 per year per person

Which of the following would still be allowed if you wanted to use Form 1040A?

- You earn less than $100,000 in salary, interest and dividends. - You can take a tax credit for child care. - You can claim a deduction for an IRA contribution.

Which of the following statements is NOT true?

You have 30 days from the date coverage ends to elect COBRA

A tax _____ directly reduces taxes owed.

credit

If interest rates increase, the value of a bond will ______

decrease

People who claim large or unusual ______ increase their odds of getting audited.

deductions

You calculate taxable income by reducing gross income by adjustments, exemptions, and ______

deductions

The risk that the company you are investing in might go under is called:

default risk

The potential return on an investment should be:

directly related to the risk assumed

_______ income insurance protects your most valuable asset: your ability to earn money.

disability

Salary is an example of ______ income.

earned

Health insurance coverage is available from:

employers government programs health maintenance organizations private insurance

A tax imposed on the value of a person's property upon that person's death is called a(n):

estate tax

True or false: A tax deduction reduces tax liability directly, dollar for dollar.

false

True or false: A tax-exempt investment generates income to be taxed in later years while a tax-deferred investment produces tax-free income.

false

True or false: Health insurance coverage is only available from private insurance companies.

false

True or false: Insurance for your home should cover the amount you paid for the home.

false: It should cover the cost of rebuilding or repair, not the purchase price.

True or false: Disability insurance allows you to receive your full income plus premiums in the event of becoming disabled.

false; Typically, disability policies will replace 50-70% of your income.

A health insurance plan that provides a wide range of health care services for a fixed prepaid monthly premium is called a:

health maintenance organization (HMO)

Disability insurance provides payments to replace ______ when an insured person is unable to work

income

One of the many uses of life insurance proceeds is to replace _______ for your family and other debts at the time of death

income

An example of tax-exempt income is the interest from most _____ bonds while an example of tax-deferred income is earnings on an IRA.

municipal (state)

Term life insurance provides protection for a specific ______ of time.

period

Inflation is the overall increase in the ______ of goods and services over time.

price

The buying power of a consumer will be reduced if

rate of return is less than inflation

The purpose of the W-2 is to:

report annual earnings and amounts paid in taxes

The difference between the risk-free rate of return and the expected yield of an investment that involves risk is called the _______ ________.

risk premium

Permanent life policies provide a death benefit and a(n) _____ account.

savings

"Safe" investments include:

select mutual funds certificates of deposit government bonds

Preferred provider organizations are more popular than health maintenance organizations because of which of the following factors?

Choice of physicians Greater flexibility

Which part of Medicare covers prescription drugs?

D

Which insurance provides payments to replace income when an insured person is unable to work for a long period of time?

Disability income insurance

True or false: Anyone can file as single status.

False

True or false: Social Security taxes are calculated based on the value of your property to fund retirement benefits, while income taxes are imposed on wages.

False

Which of the following might trigger alternative minimum tax?

High tax deduction for local taxes High tax deductions for state taxes Significant amount of second mortgage interest

With an HMO you must stay within one network of doctors, yet with a(n) ______ you can choose your own doctor.

PPO

Contributions to a traditional 401(k) are made on a ______ basis.

pretax

Which of the following is NOT a factor in determining the percentage of your investments that should be invested in each asset class?

Your income

A tax _____ will usually reduce taxes more than tax deductions.

credit

In the independent life stage of investing, the two most important savings goals should include your _______ and _______ .

education and retirement

One advantage of investments over savings is the ability to earn a return that can ________ inflation

exceed

Permanent policies are good for people who must be forced to save and for those who plan to keep the policy for a(n) _______ period of time

extended

The contract that is purchased by the insured person when joining a risk-sharing group is known as

policy

The one who purchases a insurance policy so that risk can be shared with the insurer is called

policyholder

Adjusted gross income is gross income ______ by IRA contributions, alimony, and other adjustments

reduced

The base of the investment pyramid is ___________.

savings

Cash, CDs, government bonds, and money market mutual funds have very low risk, are all considered very ______ investments and are on level one of the investment pyramid.

secure

True or false: An exemption is a reduction in taxable income for you, your spouse, and dependents while a standard or itemized deduction is allowed for specific expenses and contributions you make.

true

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

true

______ life insurance allows you to change your premium without changing your coverage.

universal

Which is true regarding tax-deferred investments:

- Taxes are not paid until funds are withdrawn. - It's possible to pay taxes in a lower tax bracket. - Ideally, you withdrawal your tax-defered funds when you are retired.

Generally, you should keep your tax records for at least three years after filing your return. However, you may be held responsible for providing back documentation

for up to seven years.

The amount you can collect with collision insurance is limited to the actual ____ value of the automobile at the time of the accident.

market

True or false: Casualty and theft deductions are allowed for financial losses resulting from natural disasters, accidents, or unlawful acts.

true

A tax ______ reduces taxable income, thereby reducing the tax liability.

deduction

Qualifying widow or widower status is for an individual whose spouse has ______ within the past ____ years and who has a dependent. This is taken directly from the text.

died; 2

True or false: The amount you can recover with collision insurance is limited to the wholesale value of your vehicle.

false - Coverage is limited to the retail value of the vehicle.

Married, filing separate returns require that each spouse is responsible for his or her own income tax.

True

True or false: A household inventory is a list or other documentation of personal belongings with purchase dates and cost information.

true

True or false: Although anyone can use Form 1040, you must use it if you itemize your deductions.

true

True or false: Income tax is calculated on adjusted gross income less deductions and exemptions.

true

True or false: W-2, W-2P, and 1099 forms make up the proof of income documents for a taxpayer.

true

Real estate ______ taxes are based on the value of land and buildings.

property

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.

fix; paid

John owed $10,000 in taxes on taxable income of $40,000. If John earns an additional $1,000, he will pay an additional $280. Therefore:

his average tax rate is about 25%

True or false: While municipal bonds pay a lower rate of interest than other types of bonds, the after-tax income may be higher than other types of bonds.

true

Estate taxes are calculated on the ______ of a person's property at death.

value

Ben is a father of three children who is concerned about his future career with his company. His investment choices will most likely be:

conservative, less risky

Universal life is similar to whole life insurance, except it does not have a _______ ______return.

guaranteed minimum return

Which of the following accurately describes the split limits of 100/300/100 with bodily injury liability for automobile insurance?

$100,000 limit claim for one person, $300,000 limit for all persons, $100,000 for personal property

A _____ is a collection of investments

portfolio

Life insurance proceeds can be used wisely to:

- pay off home mortgage or debts - provide education or income for children - establish regular income for survivors

Part ____ of Medicare covers all services for inpatient hospital care after you pay a single deductible.

A

Cash value is the amount the policy holder _____ after giving up a life insurance policy

receives

Your household inventory can include

video recording or photos

Health insurance is a form of ________to alleviate the financial burden individuals suffer from illness or injury.

protection

A point-of-service plan is a network of selected contracted participating ______

providers

A whole life policy that combines term insurance and investment elements is called:

universal life

The main factors that influence premiums for automobile insurance are:

vehicle type, rating territory, and driver classification

Which type of investments should be included in Tier I - low risk, low return investments?

High-grade corporate bonds Money market accounts

You must file form 1040 if you (this is taken directly from the text):

have more than $100,000 of income

As the riskiness of an investment increases, the risk premium:

increases

A health insurance plan should be coordinated to the needs of the:

individual

Fluctuation of prices of securities due to the behaviors of investors in the marketplace is known as:

market risk

True or false: A permanent life insurance policy provides both insurance and a savings account.

true

You invest $10,000 today in hopes of purchasing a computer system and gain 3.5% on your investment. At the same time inflation rises 4% over the same time period. It will cost you an additional ______ to purchase the same goods.

$50 Reason: If inflation is 4% on computers, the computer system will cost you $10,400 in one year. You've gained $350 on your investments ($10,000 X 0.035), so your account only has $10,350. You will need to pay the additional $50.

Permanent policies are good for people who:

plan to keep the policy long term. want a more structured way to save.

A group of doctors and hospitals that agree to provide health care at to members at prearranged, reduced fees is called:

preferred provider organization

A preferred provider organization (PPO) is a group of doctors and hospitals that agree to provide health care to members at ______ fees

reduced

True or false: Any time you invest in stocks, corporate bonds, and mutual funds that invest in stocks, you assume default or credit risk.

true

high risk =

high potential return

Which of the following statements are true about software and taxes?

- Software packages such as H&R Block At Home and Turbo tax help users prepare and file returns. - A spreadsheet program can help you keep track of income and expenses as the year plays out. - A spreadsheet program such as MS Excel can help you with your tax planning.

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

false - Collision insurance covers your vehicle if you are at fault in an accident.

Which of the following is NOT a document that comprises an individual's income records?

1040

For job related expenses to be deductible, they must exceed ______ of adjusted gross income.

2%

If you are in the 28% tax bracket and owe $20,000 on $100,000 of taxable income, your average tax rate and marginal tax rate would be, respectively:

20% for average and 28% for marginal

What type of risk associated with preferred stocks or government or corporate bonds is the result of changes in the interest rates of the economy?

Interest rate risk

Which of the following should be considered for Tier II (intermediate-risk, intermediate-return) investments:

Real estate Blue-chip stocks Money market accounts

Which type of insurance provides liquidity at the time of death?

Life insurance

What program was designed to provide medical assistance to low-income individuals and families?

Medicaid; Medicare is for the elderly and the disabled.

Which part of Medicare helps pay for doctors' services and a variety of other health services and supplies?

Medical (Part B)

_____was designed to provide medical assistance normally to low-income families and individuals who are eligible to receive payments under one of the cash assistance programs.

Medicare

______policies make 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

______ work like HMOs, except the networks are managed by groups of doctors and hospitals.

PPOs

Choosing a health insurance plan requires which of the following?

Study Comparison shopping

At any given age you purchase life insurance, which type of policy will have the lowest premium?

Term

Which Tier group should you have the smallest percentage invested?

Tier II - high risk

Identify the policy that supplements your basic personal liability coverage and provides protection for all kinds of personal injury claims?

Umbrella policy

Disability income insurance protects your most valuable asset. which is your:

ability to earn income

The person named in a life insurance policy to receive benefits from the insurance company is called a:

beneficiary

The amount received after giving up a whole life type of insurance policy is called the:

cash value

Medical costs, taxes, and interest are all examples of _____ deductions that are subtracted from adjusted gross income.

itemized

The two main categories of automobile coverage are:

liability full coverage

Investments that take longer to cash out are subject to what kind of risk?

liquidity risk

The risk of not being able to cash out an investment quickly enough to meet cash flow needs or to prevent a loss is called _______ risk

liquidity risk

low risk =

low return

medium risk =

medium potential return

A rise in the general level of prices is called:

inflation

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

financial, risks

A health maintenance organization (HMO) is a health insurance plan that provides a wide range of health care services for a(n) ________ monthly premium.

fixed prepaid

A universal life does not have a ____ minimum return

guaranteed

Which of the following statements regarding asset allocation is not true?

Age and the time factor have little to do with asset allocation

The purpose of managed care is to control __________ __________ costs and improve the methods used to select health care providers.

health care

Point-of-service plans (POS) are different from health maintenance organizations (HMO) in that they reimburse expenses for out-of-plan providers, but outside the network there are _____ overall costs.

higher

True or false: Completing driver training and maintaining a safe driving record will help reduce your automobile insurance premiums.

true

Which of the following are conditions of using the 1040EZ form?

- The filer must be single or married filing joint return and claim no dependents - Taxable income must be less than $100,000. - Income can only consist of wages, salaries, and tips and not more than $1,500 of taxable interest.

True or false: A marginal tax rate is found by dividing the amount of taxes owed by the taxable income.

false

Which of the following expenses can be itemized on your taxes?

real estate taxes home mortgage interest charitable contributions

True or false: If you itemize your deductions, you can deduct contributions made to charities and amounts paid for real estate taxes.

true

True or false: There are five filing statuses for your tax return, and they are affected by marital status and number of dependents.

true

What is an advantage of enrolling in an employer-sponsored 401(k) plan?

- It is easier to save when your paycheck can be deposited directly into a retirement account. - You can give pre-tax dollars to a 401(k) plan, helping reduce your tax bill. - Many employers match contributions to the retirement plan.

If Mary owes the IRS $5,000 for her income taxes and is in the 15% marginal tax bracket, what would be her average tax rate if she had taxable income of $41,667?

About 12%

Which of the following is not a deductible tax?

Excise tax

You can lower the amount you pay in income taxes by having which of the following:

IRA cafeteria plan 401k 403b

Which of the following is an adjustment to income rather than an itemized deduction?

IRA contributions

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

Sometimes other structures Personal property House

Which of the following does not provide an exemption on your tax return?

Your 26 year old daughter who is a full time college student

Which of the following is subject to real estate property taxes?

Your house

Which of the following would disqualify someone from being your dependent?

Your son is 21, works full time and lives on his own

The tax rate on your next dollar of taxable income is called:

a marginal tax rate

The tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is

a marginal tax rate

An umbrella policy will cover the insured for:

additional personal liability coverage

As construction costs rise, you should ________ (increase/decrease) the amount of insurance coverage

increase

A household ____ is a list or other documentation of personal belongings, with purchase dates and cost information.

inventory

Real estate taxes and ______ are tax deductible by the homeowner.

mortgage interest

Interest income from ______ bonds issued by state and local governments is not subject to federal tax.

municipal

Which of the following best describes why the home can be a tax shelter?

Mortgage interest and real estate taxes are tax deductible, which helps lower the cost of home ownership.

What might a person who is uninsured experience during times of illness and injury?

A financial burden

True or false: Income tax is paid during the year through withholding from paychecks and/or estimated payments.

True

_____ is the process of paying a premium in exchange for financial protection.

Insurance

Which of the following are examples of earned income?

Salary Wages Commissions

Which of the following are the filing status categories for federal income tax purposes?

Single Married, filing joint return Married, filing separate return Qualifying widow or widower Head of household

Which of the following taxes are deductible for the person/family paying them?

State income taxes Real estate property taxes

Which of the following are categories of taxes?

Taxes on wealth Taxes on purchases Taxes on property Taxes on earnings

The major categories of taxes are taxes on ______, property, wealth, and earnings.

purchases

According to the text, homeowner's insurance covers the dwelling, personal property, and loss of use.

true

Health insurance is one way people protect themselves against economic losses due to illness, accident, or disability.

true

What are some ways of reducing premiums on automobile insurance?

Installing security devices Completing driver training Comparison shopping for automobile insurance Maintaining a safe driving record

Which of the following best describes the purpose of the alternative minimum tax?

It is to assure that people who receive tax breaks pay a fair share of taxes.

Comprehensive insurance for your car covers any damage to your car from such risks as fire, theft, falling objects, and hitting an animal but not the result of a(n) ______ accident.

car

An insurance policy requires the payment of an annual _____ as part of a contract to cover the risk.

fee

Similar to car and life insurance, the individual pays a(n) ____ for health insurance in exchange for some degree of financial assurance.

fee