Chapter 9 Test

Question 1

An essential financial planning tool.

Answer 1

Insurance

Question 2

What is the purpose of insurance?

Answer 2

To transfer risk

Question 3

What can happen without proper insurance?

Answer 3

Certain losses can bankrupt you.

Question 4

What does Conventional wisdom say?

Answer 4

That you should transfer risk.

Question 5

What is Break-Even Analysis?

Answer 5

Method used to evaluate the wisdom of a financial decision by determining the length of time it will take for the cost of the decision to be recouped

Question 6

What does raising your deductibles do?

Answer 6

Keeps your premiums down.

Question 7

What should you do if you have a full emergency fun?

Answer 7

Raise your deductible.

Question 8

T/F you should carry adequate liability?

Answer 8

True

Question 9

What should you consider on older cars?

Answer 9

Dropping collision.

Question 10

What is Collision?

Answer 10

Portion of auto insurance that covers losses due to vehicle damage in an accident

Question 11

What is Comprehensive?

Answer 11

Pays for damage to your car that is not a result of an accident.

Question 12

What kind of homeowner’s insurance should you have?

Answer 12

Guaranteed replacement cost.

Question 13

What is a good buy once you have some assets?

Answer 13

Umbrella liability policies

Question 14

What is Umbrella Liability Insurance?

Answer 14

High-limit insurance policy that acts as a protective covering over your home and car insurance against liability caused by an accident

Question 15

What is Renter’s Insurance?

Answer 15

Type of insurance that provides coverage for accidents, damages and losses in a rental (apartment or house) or dormitory

Question 16

T/F Increase your deductible and/or coinsurance amount?

Answer 16

True

Question 17

Increase your stop-loss, but never decrease your maximum pay?

Answer 17

True

Question 18

What is the HSA?

Answer 18

Health Savings Account, is a tax-sheltered savings account for medical expenses that works with a high deductible insurance policy.

Question 19

What is Stop-Loss?

Answer 19

Total out-of-pocket expense for health insurance; once reached, the insurance company will pay 100%

Question 20

What is maximum payment?

Answer 20

The amount an insurance company will pay before you are dropped from coverage (with health insurance keep at least a $1 million maximum pay)

Question 21

What percent of the population is disabled?

Answer 21

18% or 51 million

Question 22

What is disability income designed to do?

Answer 22

Replace income lost due to a short-term or permanent disability.

Question 23

T/F Try to buy disability insurance that pays if you cannot perform the job that your were educated or trained to do.

Answer 23

True

Question 24

What is occupational Disability?

Answer 24

Type of insurance that provides an income in case the insured becomes unable to perform the job he/she was educated or trained to do.

Question 25

T/F Beware of short-term policies covering less than 5 years?

Answer 25

True

Question 26

What percentage should your coverage be of your income?

Answer 26

65%

Question 27

What is the elimination period?

Answer 27

The time between the disabling event and when the payments actually begin.

Question 28

T/F A longer elimination period will lower your premium cost?

Answer 28

True

Question 29

What is Long-Term Care Insurance?

Answer 29

Policy that covers the cost of nursing home or in-home care; recommended for everyone over age 60.

Question 30

What percentage of people over the age of 65 will require long-term care at some point in their lives?

Answer 30

69%

Question 31

T/F Don't buy identity theft protection that only provides credit report monitoring?

Answer 31

True

Question 32

What are Restoration Services?

Answer 32

Part of identity theft insurance that assigns a counselor to clean up the mess made when your identity was stolen.

Question 33

Life insurance is to replace lost income due to what?

Answer 33

Death

Question 34

T/F Most people have no idea what kind of life insurance they own?

Answer 34

True

Question 35

What is Term Insurance?

Answer 35

Life insurance coverage for a specified period of time.

Question 36

What is Cash Value Insurance?

Answer 36

Also known as whole life, universal life, variable life or permanent life insurance; premiums include a death benefit and a plan to build savings within the policy; significantly more expensive than term life insurance.

Question 37

What is a Beneficiary?

Answer 37

The recipient of assets passed on from the death of a friend or relative.

Question 38

What is the most common insurance myth?

Answer 38

The need for life insurance is a permanent situation.

Question 39

Why not life insurance as an investment?

Answer 39

1. returns are historically low 2. when you die with cash value, the insurance company keeps the cash value 3. the fees deducted from your return are extremely high

Question 40

What is self-insured?

Answer 40

Condition of wealth at which time on no longer needs an outside insurance policy to cover a loss.

Question 41

What is a level term?

Answer 41

you pay the same amount for the entire term of the policy.

Question 42

T/F Stay away from fancy options?

Answer 42

True

Question 43

Children only need enough insurance for what?

Answer 43

Burial expenses