FIN3140: Exam 3
What is a beneficiary?
a person who derives advantage from something, especially a trust, will, or life insurance policy.
What are employer self-funded health plans?
a plan in which the employer takes on the financial risk of providing certain healthcare benefits to his or her employees. With self funding insurance, companies pay for healthcare expenses out-of-pocket as they are received.
What are the most common provisions in life insurance contracts?
beneficiary contingent beneficiary (who gets it if 1st beneficiary dies) grace period (time given to pay monthly premium before policy collapses) automatic premium loans reinstatement (limited period of time for you to reinstate a policy after it lapses) non-forfeiture (allows you to receive full or partial benefits from your life insurance if the policy lapses or you want to cancel the plan) incontestability clause (provider cannot dispute validity or void coverage due to a misstatement by the insured after a certain amount of time) suicide clause (if cause of death is by suicide 1-2 years after you get life insurance, you get benefits 2 years after death)
What are common causes of consumer problems and complaints?
defective products, low quality, short product lives, unexpected costs, deceptive pricing, and fraudulent business practices
In what types of situations would small claims court and class-action suits be helpful?
Small claims would be best when a lawyer is not needed at the purchase price is at the states limit Class-action is best when large numbers of people are affected by the same thing
How do closing costs affect a person's ability to afford a home purchase?
most people don't include them and they can cost a lot. paying more up front reduces closing costs
Should you switch life insurance policies?
not recommended
What are the major sources of consumer information?
personal contacts, business orgs, media, independent testing orgs, online sources, and government agencies
What actions are appropriate when buying a used car?
pre-shopping activities: problem identification and information gathering evaluating alternatives: comparison shopping, selecting options (mechanical, convenience, aesthetic) determining purchase price: know information about vehicle, use a person of authority when negotiating, get starting price info in advance, make sure to get the price before mentioning trade-in, look for rebates or low interest rates, compare financing alternatives, be willing to get up and leave post-purchase activities: lemon laws, automobile operation costs, motor vehicle maintenance
What actions are recommended when planning to sell your home?
prepare your home (repairs, painting, cleaning, landscaping) determine the price sell it yourself or use a realtor owner financing
What guidelines can be used to determine the amount to spend for a home purchase?
prequalifying for a mortgage loan -consider the price of the house and the down payment, and the size and quality of the home
What maintenance activities could increase the life of your vehicle?
regular oil change, tune-ups, tire checks, check mechanics periodically, brakes
Ho can you analyze the costs and benefits of your health insurance policy?
reimbursement (benefits based on actual expenses) vs indemnity (specified benefits regardless of price) internal limits (max benefits for a specific expense) vs aggregate limits (limits total amount of coverage) deductible (what you pay) vs co-insurance (share of what you pay and what insurance pays) out-of-pocket limit (stop loss)- amount insured pays with deductibles and coinsurance before insurer pays 100%. helps lower financial risk and increases premium the higher the limits reasonable and customary charges- average fee in an area
What can individuals do to reduce healthcare costs?
review fees and charges, asking for generic drugs, seek preventative care, practice preventative care and stay well, consider high deductibles, use a flexible spending plan
What are the methods of managing risk?
risk avoidance risk reduction (setting a sprinkler system, cameras) risk assumption (self-insurance) risk shifting/transference: transferring risk to insure company in exchange for premiums paid (deductibles to be paid out of pocket) $1000 deductible; the rest insurance pays. low deductible = high premium
What is the purpose of insurance?
risk shifting to risk sharing between the person insured and the insurance company/insured
What are the main sources of money for a downpayment?
savings, pension plans, sale of investments, etc
What are the main differences between whole life and term policies?
the duration of the policy is different and whole life insurance has CV that increases over time
What are some common opportunity costs associated with the selection of housing?
-interest income lost -time and cost of commuting to live in a less expensive area -no tax advantages and no equity build up for renters -time and money to repair/improve lower priced homes -time and effort to custom build
How does a service contract differ from a warranty? What rights to purchases of products do you. have even if no written warranty exists?
A warranty is a written guarantee from the manufacturer that tells you if your damaged product can be returned/fixed A service contract is an agreement between a business and a consumer to cover the cost of repair. If there is no written warranty there is an implied warranty of 90 days or consumer can keep funds to cover anything if there is neither.
What are the main benefits and drawbacks of renting a place of residence?
Apartment Renting Pros: easy to move, less maintenance, minimal financial commitment cons: no tax benefits, remodeling limitations, restrictive covenants House Renting Pros: same + more space than apartment cons: same + higher utilities than apartment
What are several types of health insurance coverage available under group and individual policies?
Basic health insurance coverage: hospital expense, surgical expense, and physician expense there is also major medical insurance, comprehensive medical insurance, hospital indemnity insurance, dental and vision care insurance, and long-term care insurance
What are the main coverages included in most automobile insurance policies
Bodily injury coverage property damage coverage Others include: wage loss insurance, towing service, accidental death, and car rental
How can most consumer complaints be resolved?
By describing the problem and the solution you wish to have at the place of purchase
What is health insurance, and what is its purpose?
It limits the financial burden of illness or injury. It is part of your overall risk management plan Includes disability insurance to protect your most valuable asset--your ability to earn income
What is the purpose of financial responsibility laws
It requires the driver to prove their ability to cover the cost of damages or injuries caused by an automobile accident
What major factors can influence the cost of home insurance
Location (more claims or certain natural disasters) Type of structure (what the house is made out of; age and style of home) Coverage amount and policy type (cost of home)
What are the 4 most common settlement options?
Lump sum Limited installment payment life income option proceeds left with company-interest first option (insurance pays beneficiary the interest for life)
What are the 2 types of life insurance companies?
Stock companies (owned by shareholders) non-par (no dividends) Mutual companies (owned by the policyholders) par (dividends)
What are blue cross and blue shield plans? what benefits does each plan provide?
They are statewide organizations that provide private health care insurance to millions of Americans Blue cross provides: hospital care benefits on a service type basis; reimburses the hospital for covered expenses Blue shield provides: benefits for surgical and medical services performed by physicians
Ho do changing interest rates affect the amount of mortgage a person can afford?
when interest rates are high you can't afford much, but when interest rates are low you can afford more. you can also refinance a mortgage if the initial interest rate becomes lower
How can you determine the amount of disability income insurance you need?
you should aim to replace 60-70% of your income
What determines your life insurance objectives?
your personal decision on what you want your life insurance to do for you and your dependents.
What are the main types of risk associated with home/automobile?
-property damage or loss -your responsibility for injuries r damages to the property of others overall risks: physical damage and loss of use
What are the reasons or rising healthcare expenditures?
1. high administrative costs (enrolling beneficiaries, premiums, eligibility, authorizations/referrals, and filling reimbursement claims) technology, duplication of diagnostic tests, aging population, regulation burdens, increasing emergencies, limited competition, inflation, malpractice insurance
What services are available to home buyers from real estate agents?
1. presenting your offer to seller at market value 2. negotiating settlement price 3. assisting you in obtaining financing 4. represent you at closing
What should you do in examining a policy before and after a purchase?
1. understand your needs first 2. buy from a company licensed in your state 3. select a competent agent 4. shop around 5. buy only what you can afford 6. ask about lower rates for non-smokers 7. read and understand your policy 8. inform your beneficiaries 9. keep policy in safe place 10. check coverage periodically
How does collision coverage differ from comprehensive physical damage coverage?
Collision coverage pays for the damages to the automobile regardless of fault. Comprehensive Physical Coverage protects against financial loss from damage to vehicle caused by a risk other than a collision (fire, theft, glass breakage, hail, vandalism)
What actions can a person take to reduce the cost of automobile insurance?
Comparison shop have larger deductibles get discounts for: good driving record, good grades, non-smoker, car alarm, multiple cars, home owner
What factors commonly influence a persons daily buying choices?
Economic factors: inflation, interest rates, tax rates, and governmental regulation Social factors: lifestyle, interests, hobbies, peer group, culture, how you were raised, ads, and media Personal factors: gender, age, occupation, education, marital status, and family size
What are the 3 main sources of disability income?
Employer Social Security Worker's Compensation
How can the quality of a school system benefit even homeowners in a community who don't have school age children?
Good schools help homes maintain property value and increase value
What are group health insurance and individual health insurance?
Group health insurance is employer-sponsored The tax cuts act requires employers to provide insurance if they have 50 or more employees. Individual health insurance is insurance for 1 person or a family. the regulations vary by state and is no sold through the health insurance marketplace after the affordable care act
What are the differences between HMOs, PPOs, HSA, HRA, and FSA?
Health maintenance organization: medical insurance group that provides health services for a fixed annual fee. in-network Preferred provider organization: A type of health plan that contracts with medical providers, such as hospitals and doctors, to create a network of participating providers. You pay less if you use providers that belong to the plan's network. More options Health savings account: a tax-advantaged account created for or by individuals covered under employer to save for qualified medical expenses. Contributions are made into the account by the individual or their employer and are limited to a maximum amount each year. Health reimbursement account: an employer-funded plan that reimburses employees for qualified medical expenses and, in some cases, insurance premiums. Employers are allowed to claim a tax deduction for the reimbursements they make through these plans, and reimbursement dollars received by employees are generally tax-free Flexible Spending Account: a special account you put money into that you use to pay for certain out-of-pocket health care costs.You don't pay taxes on this money. This means you'll save an amount equal to the taxes you would have paid on the money you set aside.
What is a coordination of benefits provision?
If group plan fails to provide the benefits for major portions of your healthcare, group policy will use a COB to integrate the benefits
When might leasing a motor vehicle be appropriate?
If you want something thats less expensive, for business purposes, easily exchangeable after a small amount of time
How does a sellers market differ from a buyers market?
In a sellers market demand is high and owners have multiple offers so there isn't much negotiating In a buyers market demand is low and buyers can negotiate prices better
How does arbitration differ from mediation?
Mediation involves a 3rd party that assists other 2 parties in settling grievances while being non-binding. Arbitration involves a 3rd party that decides the settlement and it is legally binding
What are the 2 sources of government health insurance?
Medicare: 65+ or people with kidney failure Medicaid: low income families
What is MediGap and Medisup insurance?
Medigap is a supplemental insurance that helps fill in gaps in og medicare and is sold privately
What are the 6 methods of estimating your life insurance requirements?
Multiple of Income method: (simplest) looks at income and times it by 5-10. doesn't look at family size, assets, living expenses, or other income Easy method: family needs 70% of deceased income for 7 years DINK method: pay off half of all debts and enough liquidity for funeral. spouse is expected to continue working Non-working spouse method: working spouse gets 10,000 per year until dependent turns 18. Family need method: complex. takes into account all family's debt, expenses, assets, insurance, living expenses during years of dependency and adds emergency funds and cash
What are the advantages and disadvantages of owning a home?
Owning a new home Pros: no previous owner, pride of ownership, tax benefits Cons: financial commitment, higher expenses than renting, limited mobility Owning a previously owned home Pros: established neighborhood, pride of ownership, tax benefits Cons: same + possibility of repairs Home ownership pros: same + lifestyle flexiblity cons: financial uncertainty, limited mobility, and higher living costs
What benefits do part A and part B of medicare provide?
Part A covers hospital services (inpatient, home, hospice) Part B covers medical services (voluntary services, must sign up and pay monthly)
How are the most common risks classified?
Personal risks: loss of income, loss of life due to premature death, illness, disability, old age, or unemployment Property risks: uncertainties of direct or indirect losses to personal or real property due to fire, windstorms, accidents, theft, etc Liability risks: possible losses due to negligence of the policyholder
What are the major sources of health insurance and healthcare?
Private health insurance which includes service plans like Blue Shield and Blue Cross, HMOs, PPOs, employer self-funded plans, home health care agencies, and health care accounts Government Health Care Plans which includes Medicare (Part A-D), medigap, and medicaid
What is the purpose of life insurance?
Protect someone who depends on you from financial loss related to your death
What is the purpose of personal liability insurance?
Protects you from financial losses resulting from legal action or claims against you or your family due to damages to the property of others
What is disability income insurance?
Provides income payments when the insured is unable to work because of sickness and injury.
What is the difference between pure risk and speculative risk?
Pure risk: only chance of loss, can be accidental or unintentional, can be predictable (insurable) Speculative risk: chance of gain or loss and it is uninsurable (ex. gambling, starting a business, coin flip) only way to insure is to not do it
How does renter's insurance differ from other home insurance policies?
Renter's insurance only covers protection against financial loss due to damage or loss of personal property. Home insurance covers living expenses, personal liabilities, and other coverages
Liability is the legal responsibility for financial costs of another person's loss or injuries. What are the different kinds of liabilities?
Strict liability: person is held responsible for intentional or unintentional actions Vicarious liability: person is held responsible for the actions of another person (your child hurts someone else's property)
What are the major types and subtypes of life insurance?
Term (temporary period; will be paid if insured dies within the term of the policy) -Multiyear level (straight) term: premium will be the same for the duration of your policy -Conversion term: you can convert term policy to whole life insurance -Decreasing term Whole life (pay premiums for as long as you live; premium based on age and health at time of purchase, cash value builds, can borrow against CV) -limited payment policy (premiums for 20-30 years or until insured reaches a certain age or if age occurs earlier; paid up) -variable life policy: part of premium can be invested in stocks, bonds, money, or market funds; fluctuates with the yield earned by this separate fund. -adjustable life policy: flexible premium policy; policy owner can change policy as their needs change -universal life insurance: term + permanent insurance. gives you the opportunity to change the amount you pay for an annual premium the the life of the policy without changing the coverage Group life: life insurance through employer that doesn't require a medical examination Endowment life: pays a lump sum after a specific term or death. polcy reaches amturity can be 10, 15, 20 years, or a certain age limit. Credit Life: used to pay off debt
How are daily buying decisions related to overall financial planning?
They influence your spending, investing, and saving choices. -using credit leads to paying higher prices -if you choose the cheaper option you may get something of poor quality -selecting hard to repair brands can hurt your financials -ordering online -comparison shopping
What factors influence how much a person pays for automobile insurance?
Vehicle type: Make and model (replacement parts, too) Rating territory: place of residence used to determine the auto insurance premium Driver classification: based on the drivers' age, sex, marital status, driving record, and driving habits. (young drivers under age 25 and those over 70 tend to have more frequent and severe accidents; poor driving records mean higher premiums)
When might refinancing a mortgage be advisable?
When interest rate decreases 1%
Under what conditions might an adjustable rate mortgage be appropriate?
When interest rates are high and are expected to drop
Describe some situations in which you might use the services of a lawyer?
When suing for injury damages caused by a product
What is double indemnity?
a clause that would double the life insurance policy face amount if the insured dies in an accident
What are the major provisions of a health insurance policy?
eligibility-who is entitled to benefits assigned to benefits-direct pmts internal limits-only a fixed amount/patient responsible for the difference co-payments: cost-sharing between insurer and insured service benefits: specified care exclusions and limitations:what policy doesn't cover cancellation and termination
How do insurance companies determine your insurability?
filling out an application and providing medical history and examination
What are home healthcare agencies?
health care or supportive care provided by a professional caregiver in the individual home where the patient or client is living, as opposed to care provided in group accommodations like clinics or nursing homes
What does homeowners insurance cover?
house and other structures (damage or destruction to home) additional living expenses or loss of use while your home is uninhabitable (10-20% limit is for 6-9 months) personal property (keep a household inventory and add a floater for very expensive items) 55-77% personal liability and related coverages (medical payments of anyone that doesnt live in home)
How do you determine the need for life insurance?
how much money do you leave for your dependents
What factors effect a person's ability to qualify for a mortgage?
income, other debt, amount for a downpayment, length of loan
What actions can a person take to reduce the cost of home insurance?
installing locks, smoke detectors/alarms compare companies and rates
What is an annuity?
insurance contract that provides regular income, supplements retirement income, tax-deferred investment plans
What is a rider?
modifications that add or exclude benefits ex: waiver disability benefit accidental death double indemnity (company will pay double the policy if death was an accident) guaranteed insurability cost of living protection (prevents effects of inflation) accelerated living benefits (less than 100% is given before death) second-to-die option (pays after 2 people die?)
