Foundations in Personal Finance - Chapter 9 Test

Transcription

1 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 insurance) 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 is called: A) Deductible B) Out of pocket C) Elimination period D) Stop gap 3) Life insurance policy for a specific period of time is called: A) Universal B) Level C) Term D) Whole life 4) The purpose of insurance is to: 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? 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? A) Auto insurance B) Identity theft protection C) Health insurance D) Life insurance 7) Which of the following is not a recommended way to save on your health insurance premium? 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) 2) 3) 4) 5) 6) 7) 1

2 8) A person becomes self-insured when: A) Their kids are grown, they have no debt, and they have fully funded retirement B) They have no debt C) Everyone should have term life insurance regardless of age or financial well-being D) They own their own business 9) Which of the following is true? 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? 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 disability insurance is false? A) Disability insurance is not necessary if you have a good health insurance policy. 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? 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? 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. 8) 9) 10) 11) 12) 13) 2

3 14) Which of the following policies would be a duplicate coverage for your health insurance policy? 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 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 14) 15) 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 long-term care insurance. 17) 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 option. 25) 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

4 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 for young adults. 42) 4

5 Answer Key Testname: CHAPTER 9 MASTER 1) A 2) C 3) C 4) B 5) B 6) D 7) C 8) A 9) A 10) A 11) A 12) B 13) D 14) B 15) C 16) TRUE 17) FALSE 18) TRUE 19) FALSE 20) FALSE 21) TRUE 22) TRUE 23) TRUE 24) TRUE 25) FALSE 26) policy 27) beneficiary 28) will 29) out-of-pocket expense 30) coverage 31) claim 32) premium 33) liability 34) deductible 35) co-payment 36) By paying a small, affordable premium, you are transferring the financial risk of lifeʹs major catastrophes. Insurance protects your wealth during those events. 37) Liability covers property damage and medical bills if you are at fault in a car accident or if someone gets hurt on your property, thereby protecting your wealth. 38) Cash value policies are typically more expensive than term insurance; if you manage your money well, you will become self-insured and will not need life-long coverage; the return on a cash value life insurance policy is small when compared to investing that money and simply buying a low -cost term life insurance policy. 39) Save, invest, stay out of debt, and have a solid financial plan. 5

6 Answer Key Testname: CHAPTER 9 MASTER 40) Credit life/disability, credit card protection, cancer and hospital indemnity, accidental death, any insurance with cash value, pre-paid, burial, mortgage life insurance, pet insurance, wedding insurance; these policies either provide duplicate coverage or protect against small financial circumstances that would be covered by your emergency fund. 41) Answers will vary but should include a common risk and the appropriate type of insurance for that event. Examples: Fire-homeownerʹs and renterʹs insurance; car accident-auto insurance with liability coverage; illness or injury-health insurance; identity theft-identity theft protection, etc. 42) Identity theft is the fastest growing white-collar crime in North America today; young adults aged 18 to 24 are at the highest risk; ID theft can cause profound stress and require a great deal of time and energy to restore your financial well-being. 6