Personal Finance Exam 3

Interest-Adjusted Net Cost (IANC) Method or Cost Surrender Index

A method of comparing insurance costs that incorporates the time value of money into its calculations

Traditional Net Cost (TNC) Method

A method of comparing insurance costs that sums all the premiums over a stated period (10-20 yrs) and subtracts from this the sum of all dividends over that same period

Earnings Multiple Approach

A method of determining exactly how much life insurance you need by using a multiple of your yearly earnings

Needs Approach

A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death

Sylvester and JoAnn have both been laid off work during the last year and are now very poor. They found out that needy families can receive medical benefits through Medicaid. In addition, JoAnn found out that Medicaid can be used by the aged. b. by the blind. c. by disabled persons. d. for Medicare premiums, deductibles, and co-payments. e. All of these.

All of these

You should only consider a long-term care policy that includes coverage for Alzheimer's and Parkinson's disease. It should also include which of the following provisions? a. Type of care b. Benefit and waiting period c. Inflation adjustment d. Waiver of premium e. All of these

All of these

Charlie drives his own vehicle as a taxi on weekends in his home town. With his PAP coverage, his automobile is covered since he is carrying passengers for a fee.

False

Currently only 10% of Americans receive some type of government health care entitlements such as Medicaid or Medicare.

False

Most life insurance settlements are based on the named insured dying from an accidental death.

False

Rosemary was hit by another vehicle on the way home from work. She believes the other driver was under the influence of alcohol. Rosemary is not within her rights to demand that the other driver take an alcohol test.

False

Term life insurance has a life insurance component and a savings plan.

False

The Patient Protection and Affordable Care Act was signed into law in 2010; however many of its aspects do not go into effect until 2020.

False

Under a managed health care or prepaid plan you have a good deal of freedom to choose your doctors and hospitals.

False

When the Affordable Care Act is fully implemented, 100 percent of Americans will have health care insurance.

False

While you were walking your dog, she bit a child. Medical treatment for the child would fall under Coverage C: Personal Property.

False

With short-term disability coverage, payments will continue to age 65.

False

f you have a good comprehensive health care policy, paying extra for disability income coverage is not a good use of your scarce insurance budget.

False

The policy feature that allows you to pay the premium late but still retain coverage is known as the

Grace period

Credit or Mortgage Group Life Insurance

Group life insurance that's provided by a lender for its debtors

Variable Life Insurance

Insurance that provides permanent insurance coverage as whole life does; however, the policy holder, rather than the insurance company, takes on the investment risk

A.M. Best, Standard & Poor's, Moody's, and Weiss perform a vital service for the insurance industry. What do they do?

a. They rate the quality level and performance of each company.

Patient Protection and Affordable Care Act

affordable care act. major health care act created in 2010, put in place comprehensive health insurance reforms

Sonny Coltraine was told by a friend that universal life is the best policy. He will find that a. it will have a tax-deferred savings feature. b. death benefits are not taxable income. c. death benefits and premiums are fixed. d. death benefits and premiums are flexible. e. All of these.

d. All of these

Sandra is terrible at saving; therefore her insurance advisor suggested a term life insurance policy for her since it has a saving/investing aspect.

false

Cleanup Funds

funds needed to cover immediate expenses at the time of your death

The settlement option that provides for ongoing payments for a period of time is called

an annuity

Individual practice association, group practice, and point-of-service plans are the three basic types of

health maintenance organizations.

Cash value policies include a ________ clause that allows you to borrow against the cash value of the policy.

loan

John purchases a life insurance policy on his wife Betty where he pays the premium and he will receive the life insurance money when she dies. John is both the ________ and the ________ who will receive the ________ upon the death of Betty, the ________.

policy owner; beneficiary; face amount; insured

The alternative ways that a beneficiary can choose to receive the policy benefits upon the death of the insured are called

settlement options

Settlement or Payout Options

the alternative ways that a beneficiary can choose to receive the policy benefits upon the death of the insured.

Coverage Grace Period

the late-payment period for premiums during which time the policy stays in effect and no interest is charged. If payments still aren't made, the policy can be cancelled after the grace period

With decreasing term insurance...

the premiums remain constant, but the face amount of the policy declines.

Sally brings home $50,000 a year to help provide financial support to her family, comprised of her husband and two children. She is considering purchasing life insurance. Using the earnings multiple approach, how much coverage should she purchase using a discount rate of 5% to replace 10 years of earnings.

$386,000

Using the earnings multiple approach calculate how much life insurance Heather and Robert need to take out on Heather. She earns $80,000 and is 37 years old. They want coverage until she retires at age 67. Robert is sure he can get an annual rate of return on the policy settlement of 8%. They have no children.

$630,417

The coverage grace period gives you an extension of generally ________ in which to make your premium payment without cancelling your policy.

30 days

Change of Policy Clause

A clause that gives the policyholder the right to change the form of the policy-- for example, from a continuous-premium whole life policy to a limited-premium whole life policy

Loan Clause

A clause that provides the right to borrow against the cash value of the policy at a guaranteed interest rate

Policy Reinstatement Clause

A clause that provides the right to restore a policy that has lapsed after the grace period has expired. generally, reinstatement is provided for within a specified period (3 to 5 years after the policy has expired)

Rider

A special provision that may be added to a policy that either provides extra benefits to the beneficiary or limits the company's liability under certain circumstances

Renewable Term Insurance

A type of insurance that can be renewed for an agreed-upon period or up to a specified age (usually 65 or 70), regardless of the insured's health.

Cash-Value Insurance

A type of insurance that has two components: life insurance and a savings plan

Term Insurance

A type of insurance that pays the beneficiary a specific amount of money if the policyholder dies while covered by the policy

Universal Life Insurance

A type of life insurance that's much more flexible than a whole life. It allows the policyholder to vary the premium payments and the level of protection

Jenny and Joey have seven children and are expecting another. Joey is the primary income provider for his family, and the couple recognizes that the growing family is in need of life insurance. To begin the agent search process, Jenny and Joey make a list of prospects from reputable companies. Both Jenny and Joey prefer to speak to an agent with a life insurance certification. What life insurance agent designation do you recommend?

CLU (chartered life underwriter) life insurance and estate planning

Whole Life Insurance

Cash-value insurance that provides permanent coverage and a death benefit when the insured dies. If the insured turns 100, the policy pays off, even though the insured hasn't died.

Health insurance that provides payments to the insured in the event that the insured's income is interrupted by illness, sickness, or accident is called ________ insurance.

Disability

Which of the following is a government-sponsored health care plan?

Medicare, Medicaid, and Worker's Compensation

Risk Pooling (Loss Sharing)

Sharing the financial consequences associated with risk

Actuaries

Statisticians who specialize in estimating the probability of death based on personal characteristics

Decrease Term Insurance

Term insurance in which the annual premium remains constant but the face amount of the policy declines each year

group Term Insurance

Term insurance provided, usually without a medical exam, to a specific group of individuals, such as company employees, who are associated for some purpose other than to buy insurance

Convertible Term Life Insurance

Term life insurance that can be converted into cash-value life insurance at the insured's discretion, regardless of his or her medical condition without a medical exam

Face amount or Face of Policy

The amount of insurance provided by the life insurance provided by the policy at death

Beneficiary

The individual designated to receive the insurance policy's proceeds upon the death of the insured

Policy holder/owner

The individual or business that owns the life insurance policy

Cash value

The money that the policyholder is entitled to if the policy is terminated

Insured

The person whose life is insured by the life insurance policy

Nonforfeiture Right

The right of a policyholder to choose to receive the policy's cash value; in exchange, the policyholder gives up his or her right to a death benefit.

A disadvantage of term insurance is that the cost rises each time the policy is renewed.

True

A flexible spending account saves you money on qualifying healthcare and childcare expenses.

True

A homeowner's personal inventory will help you maximize your insurance claims in case of loss.

True

An HO-4 policy is a renter's insurance policy that protects the renter's personal property.

True

An HSA is a good form of health care coverage for young, healthy people who rarely get sick.

True

Cash-value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value.

True

If your employer doesn't provide them, then it might not be a financially wise decision to purchase dental and eye insurance.

True

In 2014, at least 26 percent of all auto collisions involved cell phones.

True

In dealing with risk, one can either avoid it, manage it, or transfer it for a fee.

True

Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.

True

Long-term care insurance may not be a good buy for people under the age of 40.

True

Long-term care insurance provides money to help pay for nursing home and home health care expenses.

True

One way to lower the premiums you pay on your insurance is to have a higher deductible.

True

Only a long-term disability policy makes sense, because only it protects against financial catastrophe.

True

The earnings multiple approach is based on the notion that you want to replace a stream of annual income that's lost due to the death of a breadwinner.

True

Using the earnings multiple approach is determining the present value of an annuity as a means to determine the face value of the insurance policy one needs to purchase

True

Your insurance credit score depends on, among other things, your payment history and the types of credit used.

True

Your written or video inventory of your assets should be kept in a safe place such as a lock box at your bank.

True

Most long-term care policies require the insured to be unable to perform one or more activities of daily living (ADLs) without assistance. Which of these is included?

Walking, Eating, and Dressing are included.

Upon examining her life insurance policy, Sylvia found the cash value amount to be fixed rather than dependent upon other variables. Sylvia has a ________ insurance policy.

Whole

You are considering the need for insurance. You desire a policy that provides permanent protection, has a fixed premium, and provides a fixed death benefit. What type of policy would you purchase?

Whole Life Insurance

Your grandmother has just turned 65 years old and is now eligible for Medicare. She asks you whether or not she should also purchase Medigap insurance. What would you tell her to do?

Yes, Medicare is very complicated and there are areas not covered so it would be a good idea to purchase additional coverage.

Premium

a life insurance payment

Luke is 30 years old and earns an annual salary of $55,000. His wife wants to take out a life insurance policy on him until he turns 67. Using the earnings multiple approach, how large should the face value of his insurance policy be-assuming his wife can earn an annual rate of return of 8.5% on his life insurance pay off?

c. $430,803

You have the most popular house on the block for the neighborhood children to play at. You have a trampoline, tree fort and jungle gym. Your family also has two large German shepherd dogs. What should you consider given the described situation?

c. Purchasing an umbrella policy

Of the following life insurance policies -term, whole life, universal life, variable life -two have fixed death benefits. Which are they?

c. Term and whole life

Which statement is false regarding benefit periods on long-term health care insurance? Select one: a. Long-term health care coverage can range all the way from one year to a lifetime. b. The average stay in a nursing home is 2.44 years. c. The recommended minimum benefit period is six to nine years. d. Because women tend to spend longer periods of time in nursing care compared to men, women should consider a longer benefit period.

c. The recommended minimum benefit period is six to nine years.

Life insurance buying is a new experience for many people. Which of the following is not a basic consideration when determining life insurance needs? Select one: a. Whether or not you need life insurance at this time b. The amount of coverage you need now and in the future c. The settlement options d. The type of life insurance that fits your needs e. Shopping around for the best agent and price

c. The settlement options

The ________ rider increases your death benefits at the same rate as inflation without forcing you to complete a new medical exam.

c. cost-of-living adjustment (COLA)

Javier Jimenez was pleasantly surprised to find out that within three to five years after expiration of a previous life insurance policy, he can

c. reinstate the policy subject to current qualifications.

Hospital insurance is generally part of every insurance plan. It covers the costs associated with a hospital stay including a. room charges. b. nursing costs. c. drugs supplied by the hospital. d. All of these are correct.

d. All of these

Policies define people as disabled if they can't perform Select one: a. the duties of their own occupation. b. the duties of any occupation for which they are reasonably suited. c. their own occupation for the first two years of their disability, and thereafter if they can't perform any occupation for which they are reasonably suited. d. All of these could be correct, it varies with the policy.

d. All of these could be correct, it varies with the policy.

According to the Keown book, which statement(s) reflect(s) the purpose of the Affordable Care Act?

d. I, II, IV, and V

The Health Insurance Marketplace is a new way for people to buy health insurance. To make plans easier to compare, the website presents plans in five categories with varying levels of cost-sharing. Which of the following plans is not offered?

d. Titanium: Your plan pays 100 percent, you pay nothing.

Why is long-term care insurance needed? a. It is not covered by major medical insurance. b. It is not covered under Medicare. c. Life expectancies have increased. d. All of these

d. all of these

Some disability insurance policies offer residual or partial payments when returning to work part-time. These payments are especially desirable for those who are

d. self-employed.

All of the following are true regarding Health Savings Accounts except

d. unspent HSA funds are lost as the end of the year.

Most likely, when you apply for life insurance, you will have to fill out a detailed medical history and take a physical exam. Why is this true? a. The insurance company wants to see if you have any pre-existing conditions. b. It prevents sick people from purchasing insurance. c. It determines how you will be rated and what premiums you will pay. d. All of these e. All but It prevents sick people from purchasing insurance are correct.

e. All but It prevents sick people from purchasing insurance are correct.

Choose the option(s) available in the nonforfeiture clause of a cash-value life policy.

e. Exchange the policy for a paid-up term policy of equal face value, Receive the policy's cash value, and Exchange the policy's cash value for a paid-up policy with a reduced face value.

Your agent argues in favor of cash-value life insurance. You counteract with term to a. have a larger policy and keep things simple. b. enjoy a relatively low cost per each $1,000 of coverage. c. have a lot of insurance at affordable prices when you need it the most. d. save the difference you would pay, invest it, and come out ahead. e. All of these.

e. all of these