FINN 1003 (CHAPTER 8)
84. Paul was driving his kids to a piano lesson in a 2005 minivan. While driving, he was hit by an uninsured motorist. Although Paul and his kids had only minor injuries, their vehicle was totaled. Based on this information, which of the following is correct?
B. Paul's uninsured motorist's protection should cover medical expenses for Paul and his kids
87. Madeline had a severe allergy attack and crashed her car into a telephone pole while sneezing. The damage to the telephone pole would be covered under Madeline's
B. Property damage liability
69. Which of the following is NOT correct about renter's insurance?
B. Renter's insurance covers the building and other structures on the site.
70. Homeowner's insurance includes all of the forms listed except
E. HO-8
101. What should an insurance program's main goal be?
The main goal should be to minimize personal, property, and liability risks.
75. Andrew is applying for insurance for his new home. Which of the following is correct?
C He should use the replacement value method for settling claims to receive the full cost of repairing or . replacing his personal belongings.
68. If you have a loss due to a flood
B.You need to have purchased special coverage if you live in an area that has frequent floods in order to be covered.
90. Al left his vehicle parked on the street in the front of his house when he went on vacation. While he was gone, his street flooded and his car was severely damaged. This damage would be covered under
D. Comprehensive physical damage
91. Zachary lived in a neighborhood that was known for gang activity. One day, he noticed that his car had been vandalized. This damage would be covered under his
D. Comprehensive physical damage.
61. The best place to keep a household inventory is
D. In a safe deposit box
56. The two basic types of risk that people face regarding their personal property are
D. Physical damage and damage caused by criminal behavior
52. If you choose to insure your home or your vehicle, you are using
D. Risk shifting
94. Which of the following is NOT correct?
D. The number of small claims you have should not affect your premium
72. Vincent is applying for insurance for his new home. Which of the following is correct?
D.His personal belongings should automatically be covered with his home at 55 percent to 75 percent of his home's insured amount.
55. Which of the following is correct?
D.One question that should be asked when developing a risk management plan is: What do I need to insure?
104. What is an example of a property loss?
Examples include physical damage caused by perils such as fire, wind, water, and smoke (e.g., a windstorm causing a large tree branch to smash the car windshield) and loss or damage caused by criminal behavior such as robbery, burglary, vandalism, and arson.
32. Emergency road service coverage includes coverage for a tow to a service station as well as repairs to make the vehicle drivable.
FALSE Once the vehicle arrives at the repair shop, insurance does not cover repair costs.
9. Jim and Sandy are setting up their insurance program. One of their goals should be to reduce the possible loss of income due to fire or theft.
FALSE One goal should be to reduce the loss of income caused by premature death, illness, accident, or unemployment. Another goal should be to reduce the loss of property caused by perils, such as fire or theft, or hazards.
28. Every state in the United States has a law requiring people to carry motor vehicle insurance.
FALSE Recently, more than 45 states had laws; however, every state has a financial responsibility law that requires drivers to prove that they can pay for damage or injury caused by an automobile accident.
21. Insurance coverage for a rental is more expensive than insurance coverage for a mobile home.
FALSE Renter's insurance is relatively inexpensive. Mobile home insurance is quite expensive.
6. Risk avoidance is an organized plan for protecting yourself, your family, and your property.
FALSE The definition is for risk management.
11. Once a risk management plan is in place, the insurance programs that were set up should remain the same even as one's family needs change.
FALSE The insurance programs should grow or shrink as the protection needs change.
20. A landlord is responsible for paying renter's insurance.
FALSE The renter is responsible.
19. The National Flood Insurance Program makes flood and earthquake insurance available for all homeowners.
FALSE This program is available in some places.
13. Caroline was found liable in an accident. This was probably not due to negligence on her part.
FALSE Usually, liability is because of negligence.
37. One way to keep auto insurance rates down is to insure each vehicle you own with a different insurer.
FALSE You may receive a multi-vehicle discount if you insure two or more vehicles with the same company.
10. An important question that should be asked when setting up an insurance program is: "What do I need to insure?"
TRUE
12. An insurance claim is a request for payment to cover financial losses.
TRUE
14. A homeowner policy provides coverage for additional living expenses after a fire.
TRUE
17. Robby fell on a piece of ice on Peter's front steps and broke his arm. This is an example of a liability.
TRUE
24. The actual cash value method of settling claims is based upon the replacement cost of an item less depreciation.
TRUE
25. A brick home should cost less to insure than a similar structure made of wood.
TRUE
27. If you need information to compare Acme Home Insurance and Zebra Home Insurance, you should contact the state insurance commissioner or a consumer organization that deals with insurance.
TRUE
29. Motor vehicle insurance falls into two categories: protection for bodily injury and protection for property damage.
TRUE
3. An example of a peril is a robbery.
TRUE
33. If you drive a model of vehicle that is frequently stolen, you should expect to pay a higher premium for your auto insurance.
TRUE
34. If you live in a city, you should expect to pay a higher premium for your auto insurance than someone who lives in a rural area.
TRUE
4. An example of a hazard is defective house wiring.
TRUE
7. Risk management is an organized plan for protecting yourself, your family, and your property.
TRUE
8. The first step to setting up an insurance program is to set insurance goals.
TRUE
1. Insurance is protection against possible financial loss.
TRUE Insurance is protection against possible financial loss.
22. Mortgage lenders require that homeowners purchase home insurance.
TRUE Lenders require home insurance.
110. Discuss the amount of home insurance you should have.
The amount of home insurance should be based on: • The costs to rebuild or repair your house. • The automatic increase in coverage as construction costs rise. • Full coverage replacement value. • Coverage for personal belongings. • Claim settlement method - replacement cost will be more expensive than actual cash value.
100. Explain two ways that someone may choose to manage risk. Include an example of each method.
The following are acceptable answers: Risk avoidance - not taking an action that could be risky. Example: not driving a car to avoid a traffic accident. Risk reduction - take action to decrease the likelihood that risks will cause you harm. Examples: wear a seatbelt and install fire extinguishers. Risk assumption - take responsibility for the negative results of a risk. Example: self-insurance to cover a loss. Deciding to NOT purchase collision insurance for an old car. Risk shifting - insurance. Example: Purchasing insurance for an auto or a home.
109. Identify at least 3 forms of home insurance.
The forms are listed below: • HO-1 - Basic form. Protects against perils such as fire, lightening, windstorms, hail, volcanic eruptions, explosions, smoke, theft, vandalism, glass breakage, and riots. • HO-2 - Broad form. Includes HO-1 plus falling objects and damage from ice, snow, or sleet. • HO-3 - Special form. Includes the above plus other risks except those specifically excluded from the policy. • HO-4 - Tenant's form. Protects the personal property of renters against the risks listed in the policy. It does not include coverage on the building or other structures. • HO-5 - Comprehensive form. This expands the coverage of HO-3 by including endorsements for items such as replacement cost coverage on contents and guaranteed replacement cost coverage on buildings. • HO-6 - Condominium owner's insurance. Protects property and any additions or improvements made to the living unit.
103. Two main types of risk are related to your home and your vehicle. What are these main risks?
The main risks are risk of damage or loss of your property and your responsibility for injuries to other people or damage to their property (liability).
113. Discuss what 100/300/50 means with relation to liability coverage for automobile insurance.
The numbers 100/300/50 stand for maximum bodily injury coverage per person in an accident/limit to all persons in an accident/maximum payment for damage of property of others.
107. What is the purpose of a personal property floater?
A floater is additional property insurance that covers the damage or loss of a specific item of high value. These floaters can be used for items such as musical instruments, jewelry, computers, or other electronic equipment.
106. Daniel's house was severely damaged in a fire and he needed to file a claim for his losses. What would facilitate the processing of his insurance claim? Explain your answer.
A household inventory would provide documentation of his personal belongings. He can use photographs of his home and contents (with the date and value of objects listed on the back), a video recording, or a listing. The inventory should be kept in a secure location, such as a safe deposit box.
99. What is the difference between a pure risk and a speculative risk?
A pure risk is accidental and unintentional. Although no one can predict whether a pure risk will occur, it is possible to predict the costs that will accrue if one does. This type of risk is insurable. A speculative risk is not insurable. It carries a chance of either loss or gain. Winning the lottery and starting a small business are two examples.
59. Homeowner's insurance covers all except
A. A detached garage B. Trees and shrubs C. A tool shed D. Personal property E. All of these are covered
83. Medical payments coverage applies to medical expenses of
A. Anyone in your vehicle, including you
67. When Stanley was visiting Elaine, he tripped on her front porch step and sprained his ankle. His injuries were covered by
A. Elaine's medical payments coverage.
41. Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The skateboard is a
A. Hazard
73. Yogi is applying for insurance for his new home. Which of the following is correct?
A. He should base the amount of insurance on the price to rebuild or repair it.
44. The most common risks are
A. Personal risks B. Property risks C. Liability risks D. All of these are common risks
89. Patrick has an old beater car and wants to keep his insurance costs down. In order to minimize the financial impact of an accident he may cause he should, at a minimum, carry which type of insurance?
A. Property damage liability
49. If you choose to avoid the risk of a traffic accident by not driving to work, you are using
A. Risk avoidance
79. Tom wanted to receive as many discounts from his home insurance as possible. Which of the following would NOT provide a discount?
A. Smoke detector. B. Fire extinguisher. C. Dead-bolt locks. D. Alarm systems. E. All of these should provide a discount for Tom.
93. Which of the following is NOT a type of motor vehicle insurance available to drivers?
A. Wage loss insurance B. Emergency road service coverage C. Rental reimbursement coverage D. All of the above may be available to drivers
54. Which of the following questions should one ask when developing a risk management plan?
A. What do I need to insure? B. How much should I insure something for? C. What kind of insurance should I buy? D. Who should I buy insurance from? E. All of the questions should be asked when developing a risk management plan.
80. Motor vehicle crashes cost more than ______ in lost wages and medical bills every year.
D. $240 billion
108. What is the purpose of an umbrella policy?
An umbrella policy, also called a personal catastrophe policy, supplements basic personal liability coverage. This covers the policyholder for personal injury claims, lawsuits, and other liability claims that exceed the homeowner's policy coverage levels.
58. Homeowner's insurance covers all except
D. Automobiles
82. Motor vehicle coverage typically includes all except
D. Bodily injury liability of all expenses, no matter the cost, for the most injured
96. Cheyenne has a home insured for $400,000. It would cost $420,000 to rebuild her home. If she has home insurance that provides personal property coverage at 70 percent of value, how much of her belongings would be covered?
B. $280,000 The coverage is $400,000 * 70% = $280,000.
60. Homeowner's insurance covers all except
B. A diamond necklace valued at $25,000
38. An individual who purchases insurance is
B. A policyholder
74. Zach is applying for insurance for his new home. Which of the following is most correct?
B. He should insure the building for full replacement coverage.
78. Cindy was contacted by her home insurance agent to discuss ways to decrease her premium. Which of the following should NOT reduce her premium?
B. Increasing the amount of coverage
47. An insurance company will
B. Insure pure risk, but not speculative risk
42. Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The fact that she didn't put away the skateboard is called
B. Negligence
46. The failure to take ordinary or reasonable care to prevent accidents from happening is called
B. Negligence
50. If you choose to wear your seatbelt, you are using
B. Risk reduction
53. An insurance program
B. Should change along with needs and goals C. Should minimize personal property and liability risks
57. Liability is defined as:
B. The legal responsibility for the financial cost of another person's losses or injuries
97. Sally was driving her own car and collided with a pick-up truck. Sally sustained $150,000 in injuries and her passenger sustained $1,000 in injuries. If her coverage was 100/300/50, what are the total medical expenses the insurance company would pay for this accident?
C. $101,000 Sally's injuries would be covered to $100,000. Her passenger would be covered in full at $1,000. Total coverage = $100,000 + $1,000 = $101,000
86. Sammy was driving on the highway and drove over a piece of metal that was on the highway. The metal punctured her gas tank. This damage would be covered under her
C. Collision
88. Henry was driving at dusk and hit a deer running across the road. His damage would be covered under
C. Collision
95. Which of the following should reduce your auto insurance premium?
C. Get good grades in college
43. Barbara left a skateboard on her front steps. A windstorm then swept the skateboard up and through her window. The windstorm is a
C. Peril
45. Anything that pay possibly cause a loss is called a
C. Peril
63. Insurance that covers valuable items, such as an expensive harp, is called
C. Personal property floater
39. What is the fee that a policyholder pays when an insurance company agrees to take on the risk?
C. Premium
51. If you choose to take responsibility for negative results of a risk, you are using
C. Risk assumption
40. Insurance allows someone to
C. Shift risk
92. Various states are trying to reduce the time and cost of settling vehicle injury cases. One of those alternatives is
C. Using the no-fault system
71. Home insurance policies include coverage for all except
D. Business property
98. Last month, some of your friends were injured in an accident. Their total injuries were as follows: -Brenda - $75,000 • Raquel - $150,000 • Louis - $25,000 Coverage was 100/300/50. What was the total medical coverage in this accident?
D. $200,000 Since coverage is capped at $100,000 per person and $300,000 for the accident, Brenda and Louis are fully covered. Raquel's coverage would be limited to $100,000. Total coverage = $75,000 + $100,000 + $25,000 = $200,000.
16. A household inventory should be stored in a home office.
FALSE It should be stored in a secure location, such as a safe deposit box.
65. Personal liability coverage does NOT protect
E. A housekeeper
62. All of the following are acceptable types of documentation for a household inventory except
E. A listing of items and their details in your memory.
76. Barnaby is applying for insurance for his new home. Which of the following is correct?
E. His policy should automatically increase coverage as construction costs rise.
48. Which of the following is NOT one of the commonly used general risk management techniques?
E. Increase risk
77. Sandra is contacting several insurance companies to compare coverage for her home. Which of the following should NOT affect her premium?
E. Location to a school
64. Personal property insurance covers
E. Personal property items up to 55 - 75 percent of the insured value of the home
66. A policy that provides supplemental your basic personal liability coverage is called a(n)
E. Umbrella policy
81. Amber had permission from Bradley to borrow his car to run some errands. Unfortunately, while Amber was driving, she looked down to change songs on her iPod and sideswiped a car and hit a bicyclist. Based on her experience, which of the following would be true?
E.Amber's insurance policy should cover any property damage claims since she was driving Bradley's car with his permission.
85. Timothy was driving his friend Nick to football practice. While driving, he was hit by driver who had coverage of 100/300/50. Tim and Nick each suffered some physical injuries. Based on this information, which of the following is correct?
E.The policy would provide a maximum of $100,000 for each of the injured, and no more than $300,000 for injuries sustained in the accident.
35. An assigned risk pool is a method of calculating the insurance premiums for various groups of drivers.
FALSE An assigned risk pool includes people who cannot get motor vehicle insurance due to a poor driving record.
18. Another name for a homeowner's insurance policy is an umbrella policy.
FALSE An umbrella policy is used in addition to a homeowner's policy.
31. Collision insurance covers your vehicle against risks such as falling objects and hail.
FALSE Comprehensive physical damage coverage protects against these risks.
5. An example of a peril is defective wiring.
FALSE Defective wiring is a hazard.
15. Homeowner's insurance excludes detached structures.
FALSE Homeowner's insurance includes detached structures such as a garage or toolshed.
30. Uninsured motorist's protection automatically covers you and your family members as well as damage to the vehicle itself.
FALSE In most states, it does NOT cover damage to the vehicle itself.
26. Angela should decrease her deductible from $1000 to $250 in order to reduce her home insurance premium
FALSE Increasing the deductible should decrease the premium.
36. It is illegal to use a credit score to determine the premium to charge an individual.
FALSE Insurance companies may consider the credit score when deciding whether to sell, renew, or cancel a policy and what premium to charge. However, an insurer cannot refuse to issue you a home or auto insurance policy solely based on your credit report.
2. Samuel should buy insurance in order to eliminate his risk.
FALSE Insurance is a risk-sharing business; one cannot eliminate risk with insurance.
23. Sam's house should be insured for the amount he originally paid for it.
FALSE It should be insured for the cost to rebuild or repair the home, not the original cost.
111. List five factors that can affect the cost of home insurance.
Factors include: • Location of home - close to a water supply or fire hydrant • Location of home -high crime areas will have higher rates • Location of home - severe weather such as tornadoes and hurricanes can increase costs • Type of structure - brick homes usually cost less to insure than wood • Amount of coverage for your home • Deductible - a higher deductible should reduce the premium • Discounts - smoke detector, fire extinguisher, dead-bolt locks, alarm systems
105. List three types of coverage in a homeowner's insurance policy.
Homeowner's insurance coverage includes • Building and other structures • Additional living expenses • Personal property - up to a limit • Personal liability and related coverage • Specialized coverage (flood or earthquake)
115. What are three ways that you can maintain or reduce your auto insurance rates?
Many answers are appropriate: • Improve your credit score • Don't file small claims • Increase your deductible • Keep a clean driving record • Compare coverage at other companies • Take a driver training program • Maintain good grades • Install security devices • Be a nonsmoker • Insure two or more vehicles with the same company • Cover only liability for an old car
102. What are some questions that someone should ask himself when developing a risk management plan?
Questions include: • What do I need to insure? • How much should I insure it for? • What kind of insurance should I buy? • Who should I buy insurance from?
112. Why is it important to compare home insurance companies?
Rates can vary among insurance companies. In addition, service and coverage can vary. Not all companies settle claims in the same way.
114. Provide an example of coverage under:
a. Property damage liability b. Collision c. Comprehensive physical damage Rates can vary among insurance companies. In addition, service and coverage can vary. Not all companies settle claims in the same way. Blooms: Comprehension Difficulty: Easy Kapoor - Chapter 08 #112 Learning Objective: 3 Topic: Cost factors The numbers 100/300/50 stand for maximum bodily injury coverage per person in an accident/limit to all persons in an accident/maximum payment for damage of property of others. Examples include: a. Property damage liability - damage to another car, buildings, equipment such as street signs and telephone poles b. Collision - damage to your vehicle when it is involved in an accident c. Comprehensive physical damage - fire, theft, falling objects, vandalism, hail, floods, tornadoes, earthquakes, and avalanches