Foundations in Personal Finance - Chapter 9 Test

Name______Date ______

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following would not be a huge financial risk (and, therefore would not require 1) ) if you had a full emergency fund of $500 or more? A) You lose your cell phone B) A medical emergency C) Your identity gets stolen D) A car accident

2) The time between the disabling event and the beginning of payments in your disability coverage 2) is called: A) B) Out of pocket C) Elimination period D) Stop gap

3) policy for a specific period of time is called: 3) A) Universal B) Level C) Term D) Whole life

4) The purpose of insurance is to: 4) A) Develop a savings plan B) Transfer financial risk C) Provide an investment opportunity D) All of the above

5) Which of the following is not a recommended way of lowering your car insurance premiums? 5) A) Get good grades and take a driver education class B) Drop your auto insurance altogether C) Increase your deductible D) Shop around

6) Which of the following types of insurance is not recommended for a young single adult? 6) A) Auto insurance B) Identity theft protection C) D) Life insurance

7) Which of the following is not a recommended way to save on your health insurance premium? 7) A) Increase your deductible. B) See if a Health Savings Account would make sense for your situation. C) If you are young and healthy, you do not need health insurance. D) Increase your stop-loss or your maximum out-of-pocket expense.

1 8) A person becomes self-insured when: 8) A) Their kids are grown, they have no debt, and they have fully funded retirement B) They have no debt C) Everyone should have regardless of age or financial well-being D) They own their own business

9) Which of the following is true? 9) A) Any kind of duplicate insurance coverage is a bad idea. B) Pet insurance is a good idea since pet emergencies can be very expensive. C) You can never be too safe-there is no bad insurance. D) Mortgage life insurance is necessary if you are a homeowner.

10) Which of the following statements about long-term care insurance is false? 10) A) You should not buy long-term care insurance until age 30. B) At least 69% of people over the age of 65 will require long-term care at some point. C) Long-term care insurance is not the same as disability or short-term medical care. D) A good long-term care policy will include in-home care.

11) Which of the following statements about is false? 11) A) Disability insurance is not necessary if you have a good health . B) A longer elimination period will lower your premium cost. C) Your coverage should be for 65% of your income. D) After college, short-term disability should be covered by your emergency fund of three to six monthsʹ worth of expenses, staying out of debt, and having a money plan.

12) Which of the following statements about life insurance is true? 12) A) Term life insurance should be avoided because the policy will expire and it has no savings plan built into it. B) Cash value insurance is normally for life and is more expensive than term life insurance because it funds a savings plan. C) There is no difference between term and cash value life insurance. D) You will always need life insurance.

13) Which of the following is not a benefit of having a will? 13) A) A will enables you to nominate the persons who will handle your estate or serve as guardians to your children, and it allows you to determine who will receive all the property you have accumulated over your lifetime. B) A well-drafted will can allow your family to minimize death taxes and other costs that may drain your estate of assets. C) Your will can be an expression of your personal values. D) You only need a will if you have a large estate.

2 14) Which of the following policies would be a duplicate coverage for your health insurance policy? 14) A) Long-term care insurance B) Cancer and hospital indemnity insurance C) Auto insurance D) Disability insurance

15) You are involved in a two-car accident in which you are at fault. The other driver is injured and 15) your insurance covers the medical expenses of the victim. This type of insurance coverage is called: A) Comprehensive B) Collision C) Liability D) Uninsured motorist protection

TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

16) Comprehensive coverage takes care of damage to your car that is not caused by a collision. 16)

17) After high school, you should have the following types of insurance: auto, renterʹs, health and 17) long-term care insurance.

18) Following the Five Foundations will help you to, one day, become self-insured. 18)

19) Renterʹs insurance is not necessary if you donʹt have a lot of expensive things. 19)

20) Prepaid burial policies are a good idea. 20)

21) Duplicate coverage, or any extra insurance on top of your existing insurance, is not necessary. 21)

22) Any insurance with cash value or that combines insurance with investments is a bad idea. 22)

23) You should not buy identity theft protection that only provides credit report monitoring. 23)

24) Good identity theft protection includes restoration services. 24)

25) Disability insurance offered through your employer is usually the most expensive coverage 25) option.

VOCABULARY. Define each term or phrase in the space provided or on a separate sheet of paper.

Select the word that is described in the statement.

26) Describes the type of coverage in an insurance agreement (policy, premium)

27) The recipient of assets passed on from the death of a friend or relative (insured, beneficiary)

3 28) A legally enforceable declaration of how a person wishes his or her property to be distributed after death (policy, will)

29) Specific amount of money that you pay when insurance only covers a portion of costs (fee, out-of-pocket expense)

30) Applies to the amount of protection you have through an insurance company in the event of a loss (coverage, premium)

31) Paperwork filed with an insurance company in order to get them to cover a loss for someone they insure (appraisal, claim)

32) The amount you pay monthly, quarterly, semiannually or annually to purchase different types of insurance (premium, co-pay)

33) Insurance that covers property damage and medical bills if you are at fault in a car accident or if someone gets hurt on your property (uninsured motorist protection, liability)

34) Amount you must pay before you begin receiving any benefits from your insurance company (deductible, income)

35) An amount of money you pay to help cover a portion of your medical costs (annuity, co -payment)

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.

36) Explain how people manage financial risk through transfer. 36)

37) Explain the importance of liability protection. 37)

38) Why should life insurance not be used as an investment? 38)

39) Explain how someone becomes self-insured. 39)

40) What are some unnecessary types of insurance? Why are these unnecessary? 40)

41) Identify common types of risks and basic risk-management methods. 41)

42) Explain why identity theft protection is more necessary now than ever before, especially 42) for young adults.

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