Chapter 010 Home and Automobile Insurance

Finance 1200 Spring 2010 Test #4

True / False Questions

1. Personal risks, property risks, and liability risks are types of speculative risks.

2. The most common method of dealing with risk is to shift, or transfer it to an insurance company or some other organization.

3. Self-insurance is the process of establishing a monetary fund that can be used to cover the cost of a loss.

4. Vicarious liability refers to the failure to take ordinary or reasonable care in a situation.

5. Personal property refers to building and other structures covered by homeowner's insurance.

6. Personal belongings that have a high value require coverage with a personal property floater. 7. The purpose of a household inventory is to provide evidence of items covered by home insurance.

8. Increased liability insurance is available with an umbrella policy.

9. Replacement cost for settling property insurance claims is less costly than the actual cash value method.

10. A home made of wood is more expensive to insure than a comparable brick structure.

11. The 100/300 amounts for bodily injury liability insurance refer to the costs of insurance coverage.

12. Medical payments automobile insurance coverage pays for the costs of injuries to persons in the driver's vehicle.

13. Collision coverage pays for damage to your vehicle for such hazards as fire, theft, or wind damage.

14. Property damage liability coverage would pay for damage to another vehicle for which you were at fault.

Multiple Choice Questions 15. Peril is defined as: A. the refusal by an insurance company to pay for the covered loss. B. the cause of risk. C. the cause of a possible loss. D. an uncertainty as to loss.

1 Finance 1200 Spring 2010 Test #4

16. Defective house wiring is an example of a: A. hazard. B. peril. C. risk. D. speculation.

17. Using a home security system is an example of ______risk. A. shifting B. accepting C. reducing D. sharing E. transferring

18. The legal responsibility for the financial cost of another person's losses or injuries is referred to as: A. theft. B. robbery. C. liability. D. assigned risk. E. collusion.

19. If a homeowner leaves toys on stairs that results in injury to a delivery person, this may be ruled as: A. vicarious liability. B. negligence. C. assigned risk. D. umbrella coverage. E. coinsurance.

20. The additional living expenses component of a home insurance policy is designed to: A. pay for temporary housing while your home is repaired. B. cover damage to property while away from home. C. reimburse a homeowner for damage done by a visitor. D. pay for medical expenses of people injured on your property. E. pay for repairs caused by fire or other hazards.

21. An umbrella policy is designed to cover: A. expensive personal property. B. additional buildings on your property. C. property when traveling away from home. D. major personal liability suits. E. flood damage.

22. Most home insurance policies provide coverage for: A. earthquake damage. B. flood damage. C. an umbrella liability. D. personal property floaters. E. medical payments.

23. Renter's insurance would include coverage for: A. flood damage. B. personal property. C. building and other structures. D. umbrella liability. E. earthquake damage.

24. Which of the following are not covered by renter's insurance? A. medical expenses for injuries to visitors B. fire damage of the building's roof C. additional living expenses D. accidental damage to the property of others E. cost of legal action due to personal liability

25. Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay? A. $100 B. $150 C. $200 D. $350 E. $400

26. The ______method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation. A. replacement value B. actual cash value C. umbrella D. endorsement E. personal property floater

27. Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay? A. $250 B. $350 C. $450 D. $600 E. not able to determine from this information

28. The 100 in 100/300/50 refers to: A. property damage liability coverage. B. the amount of the deductible. C. collision coverage. D. the total coverage for an accident. E. the limit for bodily injury claims that can be paid to one person.

29. Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry's medical expenses would be covered by: A. medical payments. B. collision. C. bodily injury liability. D. uninsured motorists protection. E. no-fault coverage.

30. The 25 in 50/100/25 refers to ______coverage. A. collision B. bodily injury liability C. comprehensive physical damage D. medical payments E. property damage liability

31. Comprehensive coverage would cover financial losses due to: A. injuries caused by a driver without insurance. B. damage to your car in an accident for which you were at fault. C. damage to your car caused by wind or hail. D. legal action against you for an accident. E. damage to a neighbor's tree with your car.

32. Thad Joslin was judged at fault in an automobile accident. Three others were awarded damages of $150,000, $75,000, and $75,000. Thad has 100/300 bodily injury liability coverage. What amount, if any, would not be covered by his insurance? A. $150,000 B. $100,000 C. $50,000 D. None. The total amount would be covered by insurance

33. Wind damage occurs to your car costing $800 to repair. If you have a $100 deductible for collision and full coverage for comprehensive, what portion of the claim will the insurance company pay? A. $100 B. $200 C. $500 D. $700 E. $800

34. Which of the following refers to a category based on age, sex, marital status, and driving habits that is used to set automobile insurance premiums? A. rating territory B. assigned risk pool C. no-fault system D. driver classification

35. Susan Bize owns a home in Edmond, Oklahoma. She has a coffee maker in the home that has been recalled because it is likely to start fires. The coffee maker is an example of: A. A peril B. A hazard C. A risk D. A premium E. A deductible

36. Larry Foster has bought a car with front and side airbags and antilock brakes. How is Larry managing his risk? A. Risk Avoidance B. Risk Reduction C. Risk Assumption D. Risk Shifting E. Risk Development

37. Georgia Owen has been responsible for an accident and her car has been totaled. What part of Georgia's automobile insurance would cover the damage to her car? A. Bodily Injury Liability B. Medical Payments Coverage C. Property Damage Liability D. Collision E. Comprehensive Physical Damage

38. Which of the following would be an example of the driver classification category that determines insurance rates? A. John Brown has a 2005 Mazda Miata Convertible B. Harry Anderson lives in Boca Raton, Florida C. Charlie Purciful is 22 years old D. Charlotte Webb has her vehicle in a locked garage

39. Your home insurance policy has a $500 deductible. If a windstorm causes $2,000 damage to your home, what amount of the claim would the insurance company pay? A. $2,000 B. $1,000 C. $1,500 D. $500 E. not able to determine from this information

40. The 500 in 200/500/50 refers to: A. property damage liability coverage. B. the amount of the deductible. C. collision coverage. D. the total coverage for an accident. E. the limit for bodily injury claims that can be paid in total.

True / False Questions 41. The United States has the lowest per capita medical expenditures of any industrialized country in the world.

42. Group health insurance plans comprise about 90 percent of all health insurance issued by health and life insurance companies.

43. Very few group health policy contracts have a coordination of benefits provision.

44. Basic health insurance coverage includes hospital expense insurance, surgical expense insurance, and physician expense insurance.

45. A deductible provision requires the policyholder to pay a basic amount before the policy benefits begin.

46. A coinsurance provision requires the policyholder to share the expenses beyond the deductible amount.

47. A hospital indemnity policy pays benefits only when you are hospitalized and only to the hospital where the care was provided.

48. Dread disease and cancer policies are usually very good values.

49. Public opinion polls consistently show that Americans are happy with the nation's health care system.

Multiple Choice Questions

50. Which country has the highest per capita medical expenditures of any industrialized country in the world? A. Australia B. Britain C. Canada D. Denmark E. U.S.A.

51. Most health insurance policies in the United States are sold to: A. victims of communicable diseases. B. individuals with families. C. single individuals with no dependents. D. Employees and their dependents. E. Employers, who in turn offer the benefits to employees.

52. Nathanial Drummond has three different insurance policies. He has been injured in an accident and has incurred $30,000 in medical bills. There is a clause in all of his insurance contracts the makes sure that he receives no more than $30,000 in payments from his insurance companies. This clause is called: A. Coordination of benefits B. Deductible C. Coinsurance D. Stop-Loss provisions E. Major medical expense insurance

53. Sophie Bennett must pay $500 in doctor's visits before her insurance company will make any payments for doctors visits. This is called: A. Coordination of benefits B. Deductible C. Coinsurance D. Stop-Loss provision E. Major medical expense insurance

54. Sophie Bennett has met the deductible for her doctor's visits. However, her insurance company requires her to pay 20% of all expenses above this deductible amount. This clause is called: A. Coordination of benefits B. Add on expenses C. Coinsurance D. Stop-Loss provision E. Major medical expense insurance

55. Sophie Bennett has met the deductible for her doctor's visits. She has also paid out 20% of all expenses above this deductible amount. She has paid a total of $5000 in doctor's visits. At this point there is a clause in her insurance contract that make her insurance company pay for 100% of all expenses. What clause is this likely to be? A. Coordination of benefits B. Add on expenses C. Coinsurance D. Stop-Loss provision E. Major medical expense insurance

True / False Questions

56. Most people buy life insurance to protect someone who depends on them from financial losses caused by their death. 57. Life insurance proceeds may provide a retirement income. 58. The easy method of determining life insurance is based on the rule of thumb that a "typical family" will need about 70 percent of wage-earner's salary for seven years. 59. The DINK (Duel Income No Kids) method of determining life insurance needs assumes that the spouse will continue to work after husband's/wife's death. 60. A term insurance policy pays a benefit only if you die during the period that the policy covers. 61. The premium for permanent life insurance increases with your age. 62. Two basic types of life insurance are temporary (term) and permanent insurance. 63. Term life insurance premiums decrease as you get older. 64. One important feature of term life policy is its cash value. 65. A beneficiary is a person designated to receive something such as life insurance proceeds, from the insured. 66. Usually, there is no time limit on reinstatement of a lapsed life insurance policy. 67. The second-to-die option is paid when the first spouse dies.

Multiple Choice Questions 68. You probably have little or no need for life insurance if you are: A. a single person living alone or with parents B. divorced and have two children C. married and your spouse works D. gainfully employed E. a household with several children

69. Who has the greatest need for life insurance? A. households with small children B. singles living alone C. singles living with parents D. dual income couple E. children

70. Suppose that yours is a typical family. Your annual income is $50,000. Use the easy method to determine your need for life insurance. Your insurance should be in the amount of: A. $245,000 B. $300,000 C. $345,000 D. $400,000 E. $450,000

71. Using the "non-working" spouse method, how much life insurance is needed to cover the loss of a non-working spouse whose younger of two children is 3 years old? A. $50,000 B. $150,000 C. $300,000 D. None of the choices

72. Which type of insurance is sometimes called temporary insurance? A. whole life insurance B. term insurance C. straight life D. ordinary life E. modified life