Personal Finance Chapter 10

Your son left his skateboard at the bottom of the basement stairs. While going downstairs to change a broken light bulb, you step on the skateboard and break your ankle during the fall. Medical damages total $1,455. How much will your $140,000 homeowners' insurance policy pay for this accident? The policy has $100,000 comprehensive liability coverage and medical payments of $1,000/person.

$0

Carl and Alexandra purchased a $200,000 homeowners policy for their house in 1988. They have renewed the policy each year since and have replacement coverage. This policy has a $1,000 deductible. Their home now has a replacement value of $275,000. Last week they came home to find a small fire which caused the following damages: home $50,000 personal property 20,000 landscaping 7,000 Assume Carl and Alexandra have a standard HO-3 policy with personal property covered at 50% and landscaping covered for 10%. How much will the insurance pay for the losses of their PERSONAL PROPERTY AND LANDSCAPING?

$9,700

To reduce auto insurance premiums as your car depreciates in value, you should consider self-insuring which of the following risks?

-Collision -Comprehensive

Homeowners' insurance will cover which of the following?

-The meter reader bitten by Cujo, your poodle -Your attached garage destroyed by Hurricane Ivan

Factors that affect home insurance costs include

-Type of structure -Location of home -Credit score

You could save money on your car insurance premiums by

-choosing a $1,000 deductible rather than a $100 deductible -moving to a small town with a low accident rate.

The deductible on a standard homeowners' policy applies to

-coverage on the house. -coverage on personal property.

Auto insurance premiums would be affected by

All of these

Which of the following best describes the personal property floater?

An endorsement providing coverage for items of expensive personal property not adequately covered under the standard homeowners policy.

If you have an outstanding loan on your car, the contract will require you to carry ____ insurance.

Collision and comprehensive

Your car is damaged by fire while parked in your garage. Protection would be provided by

Comprehensive auto coverage

A standard HO policy covers damage from most weather-related perils except

Earthquakes and floods

A captive agent represents many insurance companies.

False

A personal property floater and a personal liability umbrella policy offer similar coverage.

False

Age of home affects insurance premiums the most.

False

An 80 percent co-insurance clause requires the insured to carry insurance protection equal to 80% of the original cost of the home.

False

An HO-3 form with one insurance company may provide completely different coverage than an HO-3 form with another insurance company.

False

Antiques, collections, and boats are adequately protected under a standard homeowner's policy.

False

As a tenant, you would purchase an HO-3 policy.

False

Collision coverage would pay for damages to your car if a tree falls on it.

False

Earthquakes are covered under most homeowner's policies.

False

Financial responsibility laws in most states are high enough to adequately meet one's auto liability needs.

False

Nancy's house has been completely destroyed by fire. Prior to the accident, the house had a value of $100,000. Nancy had two separate policies totaling $60,000 each. She may collect $60,000 from each insurance company.

False

Replacement cost and actual cash value is the same thing.

False

The HO-3 form is a good policy for first-time buyers because it is a named perils policy.

False

The advisable dollar limit for any one auto accident is $250,000.

False

The terms "perils" and "losses" refer to the same thing.

False

Your standard HO policy will not include coverage for damage done by

Flood

The form of homeowner's insurance that is INCORRECTLY paired with the insured is

HO-1, renter

Which Homeowners' policy is best suited for a resident of a rented apartment to cover that person's personal property?

HO-4

You just purchased an older home with a market value of $100,000 and a replacement value of $180,000. What HO form would meet your needs?

HO-4

The policy that pays based on replacement cost for the home is

HO-8

The principle of ____ states that an insured should not be compensated by an insurance company in an amount exceeding the economic loss.

Indemnity

A(n) ____ agent represents multiple insurance companies.

Independent

Common types of property that are subject to internal limits on homeowner's policies include

Jewelry

Section II of the homeowner's insurance contract covers

Liability of the insured

Which of the following events would probably increase your auto premiums?

None of the above

Section I of a homeowner's insurance policy covers all of the following except

Personal Liability

The 80 percent co-insurance clause in a homeowner's policy would cause a reduction in the claim payment for a covered loss to the dwelling of $30,000 in which of the following cases?

Policy dwelling limit of $75,000, replacement cost of dwelling $100,000, actual cash value of dwelling $90,000

Auto insurance is needed primarily because of

Potential liability claims

Donna, who is single and 30 years old, has received several speeding tickets recently and was shocked by the effect on her auto insurance. Donna drives a 2004 Pontiac Firebird, is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to be advisable?

Raise her deductible from $250 to $1,000

A homeowner's policy does not provide protection for the personal property of

Tenants

A co-insurance clause will cause insurers to proportionately reduce claims payments unless you carry insurance up to a specific amount, such as 80 percent of the replacement value.

True

A peril is a cause of loss.

True

A person need not be occupying an automobile when the accidental injury occurs to be eligible for benefits from a PAP.

True

A trampoline in your back yard is an example of a hazard.

True

Which of the following would be insured for actual cash value under a standard HO-2 policy?

Unscheduled personal property

Which of the following losses is most likely to be covered under your auto liability insurance?

a legal bill incurred by your insurer defending you from a claim related to an accident caused by your negligence.

Some common liability risks include:

all of the above

The basic principles of property and liability insurance pertain to:

all of the above

Auto insurance companies may offer premium discounts for

all of these

The principle of indemnity would prevent:

an insured from collecting more than he lost.

In order to collect under uninsured motorists coverage, three specific conditions must be in effect. They are:

another motorist was at fault; this motorist has no available insurance coverage; and damages were incurred.

Collision protection pays for damage to

auto of insured

Auto insurance premiums are generally reduced by

choosing a higher deductible.

After packing up to return home for the holidays after the fall semester, Peter stopped at Double T bookstore to sell back his used textbooks. After collecting $25, he headed back to his pickup truck only to find a broken window, the truck broken into, and all his suitcases and personal property gone. The damages to his pickup would be covered by

comprehensive (other than collision) auto coverage.

Comprehensive automobile coverage refers to

coverage for damage to an insured automobile from perils other than collision.

A liability suit could result when

your dog bites the neighbor

An automobile covered under a policy with a $500 collision deductible is damaged in a collision with a fence. It could be repaired for $15,000, replacement cost is $25,000, and the depreciation and physical condition deduction is $5,000. How much will the insurance company pay?

$14,500

The advisable dollar coverage for any one auto accident is no less than

$300,000

The best place to buy automobile insurance is

insurance agent

Generally, actual cash value is defined as

replacement cost minus depreciation

The right of ____ gives the insurer the right to recover its costs from the at-fault party after the company has paid a claim to its insured.

subrogation

Section I of the homeowner's insurance policy covers

the home and its contents

Maximum liability policy limits are determined by

the insured's choice

Persons insured under Part B medical payments coverage include

the named insured family members in the car. any guest occupying the car.

Liability coverage provides payment to the

the non-family members involved in the accident

Automobile liability claims could potentially be more costly to you than car damage claims.

True

Automobile medical payments coverage applies to the named insured and family members who are injured while occupying any automobile.

True

Collision insurance pays for damage to your automobile regardless of who is at fault.

True

HO-4 and HO-6 are for renters and owners of condominiums, respectively.

True

Liability claims may result from alleged negligent acts.

True

Liability insurance generally provides some coverage for legal fees.

True

Personal umbrella policies are intended primarily for wealthy families who are often viewed as targets for large liability claims.

True

Property inventories are important to identify insurance needs and to substantiate claims.

True

Protection for personal property both at home and away from home is a provision of the homeowners' policy.

True

Replacement cost coverage is available for renters but requires an extra premium.

True

Section I of a homeowner's insurance policy covers the insured's dwelling, accompanying structures, and personal property.

True

State financial responsibility laws require only auto liability insurance.

True

The "other-insurance clause" helps prevent the violation of the principle of indemnity.

True

The right of subrogation allows the insurer to get reimbursed for claims paid.

True

When you charge your car rental to your credit card, collision insurance may be offered under the umbrella of the credit card.

True

Co-insurance is a policy provision to discourage the policyholder from being

Underinsured

Kevin, who has liability limits of $20,000/$40,000/$20,000 and a $500 collision deductible, is involved in an accident. Due to his negligence he runs into a Rolls Royce. Three people sustained bodily injuries in the Rolls Royce. The driver's injuries were worth $1,000,000, a passenger received injuries worth $12,500, and another passenger received injuries of $7,100. How much will the PAP pay for these bodily injuries?

$39,600

Jake drove Amanda's truck to the football game because his car was broken. On the way home, Jake was involved in an accident that was his fault. The resulting liability damages totaled $85,000. Jake has $100,000 liability coverage on his car, and Amanda has $50,000 on her truck. How would the $85,000 liability damages be paid for this accident?

$50,000 from Amanda's policy plus $35,000 from Jake's policy

The Thomson's house burned to the ground! They felt they were adequately covered (see coverage below). Their car (market value $10,000) was in the garage and totally destroyed. How much will the Thompsons be reimbursed for their home? Replacement value of house $80,000 ACV coverage on house 60,000 Deductible 300

$59,700

The insurance company will provide defense for a covered person against both civil and criminal charges involving her motor vehicle.

False

The most common definition of actual cash value is purchase price less depreciation.

False

The type of car you drive has little effect on your auto insurance premiums.

False

To save premium costs, one should decrease her deductible and liability coverage on a homeowners' policy.

False

Uninsured motorist protection usually provides protection to your car if a hit-and-run incident occurs.

False

You are single and age 35. Getting married will lower your auto insurance premiums.

False

Like standard homeowners' policies, a renters' policy liability coverage includes coverage away from home.

True

One should never admit fault at the scene of an accident.

True

The federal government subsidizes the flood insurance program.

True

The personal liability umbrella policy typically includes coverage for liability losses that are in excess of the limits of the comprehensive personal liability coverage provided in the homeowner's policy.

True

The principle of indemnity does not apply to life and health insurance.

True

The principle of indemnity generally limits the amount that the insured may collect to the actual cash value of the property.

True

Negligence results when a person

fails to act as a "reasonable person"

After packing up to return home for the holidays after the fall semester, Tex stopped at Double T bookstore to sell back his used textbooks. After collecting $25, he headed back to his pickup truck only to find a broken window, the truck broken into, and all his suitcases and personal property gone. The loss of his personal property and suitcases would be covered by

personal property off premises (homeowners' coverage).