Finance Test 3

1. ​The basic purpose of insurance is to _____. b. ​protect yourself from economic losses
2. ​The purchase of insurance is a common form of _____ by the insured. b. ​risk transfer
4. ​The probability of a loss occurring can be reduced by_____. a. ​the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
3. ​Insurance underwriting is best described as: b. ​loss prevention
5. ​The primary purpose of life insurance is to provide: a. ​financial security for dependents in the event of death.
6. ​Actuarial data is used to measure: b. ​the risk of loss for a population.
7. ​_____ is an activity that reduces the chance that a loss will occur. b. ​Loss prevention
8. ​The single most valuable technique in personal risk management to assist an individual in determining how much life insurance is needed is: c. ​assessing the family’s total economic needs and subtracting the financial resources available to meet those needs.
9. ​Identify a true statement about the multiple-of-earnings method. b. ​The multiple-of-earnings method considers the insurance coverage to be 5 to 10 times the annual income.
10. ​Term life insurance is characterized by _____. b. ​premium amounts related to age
11. ​If a term life insurance is convertible, the policy can be: d. ​converted to a comparable whole life policy.
12. ​Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy. b. ​whole life
13. ​Employers often provide _____ life insurance as a fringe benefit for their employees. a. ​group
14. ​A grace period permits the policy holder to retain insurance even though the premium has not been paid for: e. ​31 days.
15. ​Nonforfeiture rights guarantee that a policy owner will not lose his or her _____. c. ​cash value
1. ​Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades. b. False
2. ​You would have a better chance of choosing your own doctor with a PPO than with an HMO. True
3. ​A preferred provider organization has characteristics of both Individual practice association (IPA) and an indemnity plan. True
4. Generally, insurance is more reasonably priced through group plans than as individual policies.​ True
5. ​Living a healthy lifestyle is an example of loss prevention and control. True
6. ​During the past few decades, the percentage of our income spent on health care: a. ​has increased due to an aging U.S. population.
7. ​Which of the following is true of the workers’ compensation insurance? d. ​Workers’ compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
8. ​Which of the following is true of the health care industry? b. ​In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
9. ​Group health insurance premiums are _____. a. ​lower than individual health insurance premiums
10. ​One of the key goals of the Affordable Health Care Act of 2010 is _____. b. ​to reduce the number of uninsured citizens in the country
11. ​Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare? b. ​Medicaid
12. ​Employees should consider risk assumption for certain health risks as: c. ​they are required to pay additional insurance premium to cover the lapse of insurance coverage for them.
13. ​Long-term care is a term used to describe _____. b. ​the delivery of medical care to persons with chronic medical conditions in a nursing home
14. ​In order to qualify for disability insurance under social security, a person must be: b. ​unable to carry out the duties of any job.
15. Dependent children will usually be covered under your health insurance b. up to age 26.
1. ​Negligence results when someone: c. ​fails to act as a “reasonable person”.​
2. The principle of indemnity would prevent: b. ​an insured from collecting more than he or she lost.
3. ​A liability suit could result against you when: d. ​your dog bites the neighbor.
4. ​Which homeowners’ policy is best suited for a renter of an apartment? d. ​HO-4
5. ​A personal property floater: a. ​provides coverage for items of expensive personal property not adequately covered under the standard homeowner’s policy.
6. ​Section I of the homeowner’s insurance policy covers: d. ​hospitalization cost provided to the insured.
7. ​Section II of the homeowner’s insurance contract covers: d. ​the cost of defending the insured.
8. ​A higher home insurance cost may result from: b. ​low credit scores of the insured.
9. Replacement cost coverage is the reimbursement of: a. ​the cost of repairing or replacing damaged structures without deducting physical depreciation.
10. ​Donna, who is single and 30-years-old, has received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance? c. Raising her deductible from $250 to $1,000
11. ​A homeowner’s policy does not provide protection for the personal property of: d. ​tenants.
12. ​Auto insurance is needed primarily: b. ​as protection against potential liability claims.
13. ​Liability coverage provides payment to: e. ​the non-family members involved in the accident.
14. ​Comprehensive automobile coverage refers to: b. ​complete coverage including liability, medical payments, and damage to the automobile.
15. ​A personal liability umbrella policy typically includes: b. coverage for auto related liability losses in excess of the limits purchased in the automobile insurance.​
True or False – A house with a replacement value of $110,000 is currently insured for $90,000. The house has suffered a $15,000 loss from windstorm damage. The insurance company will pay the full $15,000 less the deductible. True
Funds for Medicare benefits come from _________. Social Security taxes paid by covered workers and their employers
Workers’ compensation insurance would make compensation payments to an injured worker only if he or she had been hurt ______. on the job
From the standpoint of the person buying insurance, the central purpose of insurance should be: to transfer risks of serious losses.
Insurance is a tool that can reduce _____ risk. economic or financial

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