ACC 3005 Personal Finance Chapter 10

Which home insurance policy form is used for covering perils such as flood, earthquake, war, and nuclear accidents?

HO-3 Reason: The HO-3 home insurance policy form is used for covering perils such as flood, earthquake, war, and nuclear accidents.

___ is the legal responsibility for the financial loss due to injuries to others or damage to property for which you are responsible.

Liability

True or false: Lending institutions require home mortgage borrowers to have home insurance.

True Reason: Correct. As part of the loan agreement, mortgage borrowers must maintain sufficient home insurance.

True or false: When we make a decision to assume risk, we are essentially self-insuring.

True Reason: Correct. This is true because we bear the entire risk if something happens.

Physical damage to a property is caused by hazards such as fire, wind, water, and smoke.

True Reason: Hazards can cause physical damage to a property, and the common ones are fire, wind, water, and smoke.

The main factors that influence premiums for automobile insurance are:

Vehicle type, rating territory, and driver classification

Wearing your seatbelt or installing smoke alarms would belong to the risk ___ technique of risk management

avoidance/reduction

Which of the following best defines homeowner's insurance?

coverage for your residence and its financial risks

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

false Reason: Correct. Coverage is limited to the retail value of the vehicle.

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

Most homeowner's policies cover many perils, including smoke, fire, and theft, but not:

flood

Defective house wiring is an example of a(n) ___ that increases the chances of fire.

hazard

Banks require home mortgage borrowers to have ___ insurance

home

An umbrella policy supplements your basic ___ liability coverage and provides protection for injury claims, such as libel, slander, defamation of character, and invasion of property.

personal

Wearing your seatbelt or installing smoke alarms would belong to the risk ___ technique of risk management.

reduction

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

true Reason: Correct. A poor driving record will increase your premiums just like a safe driving record will help lower premiums.

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

true Reason: Correct. An inventory can be a list, spreadsheet, or photo record.

Which of the following risks are covered by homeowner's insurance?

- Coverage for your place of residence - Coverage for the financial risks of damage to personal property - Coverage for the financial risks associated with injuries to others

What are some ways of reducing premiums on automobile insurance?

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

___ damage to a property is caused by events such as fire, wind, water, and smoke.

Physical

Which of the following strategies help reduce the financial impact of death?

Social Security survivor benefits estate planning life insurance

Which of the following are examples of the risk reduction technique of risk management?

Wearing seat belts Quitting smoking

Wage loss insurance will reimburse you for:

any salary or income lost due to injury in an automobile accident

Deciding not to buy collision insurance on your car is risk ___.

assumption

Which of the following financial losses can you insure against?

catastrophic illness loss of home or belongings personal and property damage when driving

Which of the following are risk assumption actions?

deciding not to purchase collision insurance self-insuring

Your insurance ___ ____ is based on your gender, age, and driving record.

driver classification

Strategies designed to reduce the financial impact of death include ___ planning, ___ insurance, and Social Security survivor benefits.

estate, life

Understanding and managing risks can ___.

help you to provide better protection for you and your family

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

house personal property other structures

Personal risks are uncertainties surrounding loss of income or life due to ___.

illness old age unemployment disability

Hazards increase the likelihood of a(n) ___ through a peril.

loss

Liability is the legal responsibility for the financial cost of another person's financial ___ or injuries.

losses

Self-insurance is a risk ___ strategy that requires the establishment of a monetary fund to cover the cost of a loss.

management

Which of the following are factors in setting a driver classification?

marital status age and sex driving record

Which of the following are covered by renter's insurance?

personal liability personal property additional living expenses

Shifting of risk is done through the purchase of an insurance ___ from an insurance company.

policy

You shouldn't select a company based on ___ alone.

price

Insurance similar to homeowner's that is available for tenants is ___.

renter's insurance

Your insurance protection for your home should be based on the amount needed to ___ or repair your house and not the amount you originally paid for the home.

replace

The four risk management methods (presented in the text) include

risk avoidance risk reduction risk assumption risk shifting

Towing and emergency road service coverage pays for the cost of getting your vehicle to a

service station, but not for the cost of repairs

True or false: Comparison shopping can usually help to lower the premiums on your homeowner's insurance policy.

true Reason: Correct. Studies show that premiums can be lowered by 30% or more by comparing companies.

The main types of risks related to a home and an automobile are

your responsibility for injuries to others damage or loss to your property your responsibility for damage to the property of others

The main bodily injury coverages are:

-bodily injury liability -uninsured motorist's protection -medical payments coverage Reason: Correct. The main bodily injury coverages are bodily injury liability, medical payments coverage, and uninsured motorist protection.

The financial impact of death includes:

-loss of services -loss of income -final expenses

The goals of insurance include:

-minimizing liability risks -minimizing personal risks -minimizing property risks Reason: Incorrect. The main goal of insurance is to minimize insurable risk. You can't avoid perils, but you can reduce the financial consequence of perils.

True or false: The main types of risks related to a home and an automobile are property damage and loss of income due to premature death.

False Reason: Correct. Home and automobile risks are related to property damage or loss and injuries or damage to the property of others.

True or false: Increasing your deductibles will increase your premiums for your homeowner's policy.

False Reason: Correct. Increasing deductibles will decrease premiums.

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

False Reason: Correct. It should cover the cost of rebuilding or repair, not the purchase price.

True or false: Your homeowner's insurance covers damage to your home, other structures on your property, and your automobile.

False Reason: Correct. Your automobile is not covered.

People's risk management needs typically remain unchanged throughout their lives.

False Reason: People's risk management needs change at various points in their lives.

The connection between managing risks and maximizing your success can be best described by which of the following statements?

Reducing risks and, therefore, financial loss improves your chances for economic, social, physical, and emotional well-being.

True or false: Risk management is a long-range financial planning process that helps reduce financial losses caused by destructive events.

True Reason: Correct. Risk management is an organized strategy for protecting assets and people.

Which of the following are general risk management techniques?

avoidance reduction assumption

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

cash

Increasing ___ lowers your premium.

deductibles

The main bodily injury coverages are bodily injury liability, mortgage payments coverage, and uninsured motorist protection.

false Reason: The main bodily injury coverages are bodily injury liability, medical payments coverage, and uninsured motorist protection.

The purpose of a financial responsibility law is to force drivers to ___.

show their ability to cover the costs of damage or injury from automobile accidents

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

true Reason: Correct. This is true. Good drivers pay lower premiums.