Finance 3

Most common use for consumer loans A formal credit, negotiated by contract, that specify both the terms for borrowing and the repayment schedule, used mainly to borrow money for big-ticket items.
Type of consumer loan for those heavily indebtedStudent loans; amount that can be borrowed is limited or unlimited? Consolidation loan: when a consumer borrows money from one source to pay off other forms of credit. Usually expensive.
Highest interest rate installment loans are usually found at? Sales Finance Companies: a firm that purchases notes drawn up by sellers of certain types of merchandise, typically big-ticket items.
Characteristics of life insurance policy loans Loans made against a holders life insurance. Life insurance companies are required by law to make loans against the cash value of the policy. Usually carries a variable rate, do not have a repayment date because you’re really borrowing from yourself. The amount of loan outstanding plus accrued interest is deducted from the amount of coverage provided by the policy, endangering your beneficiaries with a low payout should you die before repayment of the loan.
Most useful suggestion when making a loan to a friend or a relative Borrowing to or from friends or relatives is not advisable. If done there should be a specified loan agreement that states cost, conditions, and maturity date as well as obligations of both borrower and lender.
Debt safety ratio = (Total monthly payments / monthly take-home pay) x 100>>>10% or less = strong credit position20% or more = weak credit position
With a simple interest loan interest is calculated on the ending, beginning, average balance? Beginning. F = P x r x t
Security agreement determines what regarding the item purchased?Note, defined In a secured transaction, the borrower pledges to the lender a security interest in property, which is referred to as the collateral. The lender files a lien, which is a legal claim that permits them to liquidate the collateral to satisfy the loan if the borrower defaults.
What document legally binds the borrower and lender to all items of an installment contract?
Student loans; amount that can be borrowed is limited or unlimited? LIMITED: 1st yr 3,500, 2nd yr 4,500, 3rd+ yr 7,500, total= 31,000. Maximum for both undergrad and grad loans combined is 138,500 (224,00 for health prof.) PLUS loans are made to parents for student, Strafford loans are made to student.
When is it better to use savings instead of borrowing to make a purchase? When it cost more to borrow the money than you can earn it in interest.
Legal claim that allows creditors to liquidate loan collateral is? Lien
Underwriting, defined; its purpose is to assist the insurance company in avoiding what? The process used by insurers to decided who can be insured and to determine applicable rate that will be charged for premiums. They are trying to avoid adverse selection which happens when only high-risk clients apply for coverage.
What type of action can reduce the probability of a loss occurring? Loss control: an activity that lessens the severity of loss once it occurs.
Primary purpose of life insurance To protect your dependents from financial loss in the event of your untimely death
Most accurate method to determine amount of life insurance required Multiple-of-earnings- method: method of determining amount of life insurance needed by multiplying gross annual income by some number (usually b/w 5 &10)
Settlement option most often chosen Lump sum: the entire death benefit is paid in a single amount, allowing beneficiaries to use or invest the proceeds soon after death occurs
Underwriting: it protects against what and ensures that premiums are based on what? Underwriting protects against adverse selection and ensures premiums are based on the consumers chance of death.
Characteristics of term life insurance Offers financial protection for only a certain period of time such as 5, 10 or 30 years. An advantage is that it usually offers lower initial premiums, disadvantage is that once the policy term expires you must renew the policy and can be a problem if you develop underwriting factors.
Life insurance convertibility means what? Means that you can convert your term insurance policy to a comparable whole life policy at a future time.
How the suicide clause works: If an insured commits suicide with in 2 years of the policy’s inception the contact is void and the company simply returns the premiums that have been paid. If insured commits suicide after this initial period has elapsed, the policy proceeds are paid regardless
How life insurance proceeds are divided among primary and contingent beneficiaries? The primary beneficiary receives the entire death benefit if they are living when the insured dies, if they are not survived by insured the benefits are distributed to the contingent beneficiaries.
The life insurance policy feature that permits additional coverage periodically without showing proof of insurability Guaranteed purchase option
UCR charges are most relevant in which type of health care plan? Traditional indemnity plans: a plan where the health care provider is separate from the insurer, who reimburses you or pays provider for a specified percentage of expenses after a deductible amount has been met.
Those who qualify for Social Security health care (Medicare) are? 65 years of age or older and some under 65 who receive monthly social security disability benefits
Medicare parts, defined Basic hospital insurance: provides inpatient hospital services such as room, board, and other customary inpatient service for the first 90 days of illness.Supplementary medical insurance: cover the service of physicians and surgeons in addition to the cost of medical and health services such as imaging, laboratory tests, prosthetic devices, rental medical equipment, and ambulance transportation.Prescription drug coverage: covers both brand-name and generic prescription drugs at participating pharmacies for those with high drug costs.
What benefits is workers’ compensation intended to provide? Provides compensation to workers who are injured or become ill through work-related causes. Include medical and rehabilitation expenses, disability income, and scheduled lump sum amounts for death and dismemberment.
To reduce the number of unnecessary surgeries, what is the common practice? Second surgical opinions
Pre-existing conditions, defined A clause permitting permanent or temporary exclusion of coverage for any physical or mental problems the insured had at the time the policy was purchased.
ADLs are used to? (activities of daily living ) The inability to perform these are used as provisions to determine whether the insured will receive payment for the claims.
The elimination period in disability income insurance is similar to what provision commonly found in health insurance? Typical waiting periods range from 30 days to 1 year. If you have an adequate emergency fund to provide family income during early months of disability you can choose a longer waiting period and substantially reduce your premiums.
General requirement to qualify for disability insurance under Social Security is? You must be unable to do ANY job whatsoever, and the disability is expected to last over a year. Benefits don’t begin until you’ve been disable for at least 5 months.
Program that provides health insurance to those unable to pay for it Medicaid
How means testing for Medicare operates
Definition of OASDHI
How COBRA works
Commonly available types of decreasing term insurance are?
Characteristics of survivorship insurance
Compute a life insurance death benefit from facts given
Purchase of insurance is which risk management technique?
Purpose of the garnishment clause
Purpose of the acceleration clause

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