Personal Finance Exam 3

What is Risk? Uncertainty about whether a financial loss will occur and how large the loss will be.
What is Automobile insurance? Combines the liability and property insurance coverages that most car owners and drivers need into a single-package policy. It is NOT optional.
Risk reduction generally includes what? The use of insurance.
Will homeowners insurance pay for injuries to visitors regardless of who is at fault? Yes
What two disasters are not covered under the standard homeowner’s insurance policies? Earthquakes and Floods
What is Speculative risk? Involves the potential for either gain or loss; equity investments might do either.
What is Pure Risk? A situation that exists when there is no potential for gain.
What is the first step in the risk-management process? Identify the sources of risk.
Examples of a peril include… Fire, theft, illness, and accidents
Steep staircases with no lighting are an example of a (n) Exposure
Your collision insurance protects you when you drive your own car, a rental car, and your friend’s car
You should not keep the documentary for your personal property… At home
What is Health care plan? Generic name for any program that pays or provides reimbursement for direct health care expenditures.
Are open-enrollment periods common in group health care plans? Yes
What is What is Comprehensive health insurance? Insurance that provides protection against financial losses resulting from hospital, surgical, and medical expenditures with policy limits as high as $1 million or more.
Can both traditional health insurance and HMOs can be offered as a high deductible plan? Yes
What is the most obvious health-related loss? Direct health care expenses
Preventive health care is encouraged by whom? Health maintenance organizations.
what is a copayment? A variation of deductible requires you to pay a specific dollar amount each time you use your benefits for a specific covered expense item.
Why cannot one rely on a workman’s compensation to cover health needs? Because it covers only job related injuries and illnesses.
What is the purpose of life insurance? To protect the dependent of someone from financial losses caused by death.
How much can a modest funeral cost? Easily $10,000.
Will your need for life insurance change significantly over the course of your life? Yes.
Are life insurance proceeds nontaxable to the beneficiary? Yes
Which costs more: term life insurance or cash-value life insurance? Cash-Value Life Insurance
What is the most accurate and complex method of calculating life insurance needs? The needs-based approach
What is another term for straight life insurance? Whole life insurance.
What is the person whose life the policy is written called? The insured
According to Dave Ramsey, what is debt? A product
What percentage of marriages end in divorce in the first 7 years, mostly because of money? 52%
What is the borrower to the lender? A slave
What does creative financing mean? You are too broke to buy a house.
Myth or truth?If I loan money to a friend or relative, I will be helping them. Myth
Myth or truth? Loaning a friend or relative money will cause the relationship to be strained or destroyed. Truth
Myth or truth? By co-signing a loan, I am helping out a friend or relative. Myth
Myth or truth? The bank requires the co-signer because the person isn’t likely to repay. Truth
Myth or truth? Cash advance, rent-to-own, title pawning, and tote-the-note are needed services for the lower income people. Myth
Myth or truth? Cast advance, rent-to-own, title pawning, and tote-the-note are horrible, greedy rip-offs that are not needed and benefit no one except the business owner. Myth
Myth or truth? Playing the Lotto or other forms of gambling will make one rich? Myth
Myth or truth? Playing the Lotto or other forms of gambling are taxes on the poor and taxes on a people who can’t do math. Truth
Myth or truth? Car payments are a way of life. Myth
Myth or truth? Staying away from car payments by driving reliable cars is what the typical millionaire does. Truth
Myth or truth? You can get a good deal on a new car. Myth
Myth or truth? A new car, according to Kiplinger’s, will lose 60% of a value in the first 4 years. Truth
Myth or truth? My home equity loan is a good tax deduction. Myth
Myth or truth? People will pay their 30 year mortgage off early because most people do. Myth
Myth or truth? 97.3% do not prepay on their 30 year mortgage. Truth
Myth or truth? An adjustable rate mortgage is a good thing? Myth
Myth or truth? Adjustable rate mortgage transfers risk to the borrower. Truth
Myth or truth? You need a credit card to rent a car or pay by phone? Myth
Myth or truth? The debit card is not without risk. Truth
What percentage of Americans do not pay off their credit cards every month? 78%
How much credit will you spend in groceries every month? 40-60%
What percentage of bankruptcies are of college age? 19%
Myth or truth? Debt is a tool and will help you create prosperity? Myth
What are the 4 ways of selling? 1.Personal selling2.Financing3.TV and Media4.Product positioning
How much does something have to cost for it to be a significant purchase? $300
What is maturity? Learning to delay pleasure.
what are the five steps for large purchases. 1.Wait overnight2.Consider your buying motives3.Never buy anything you don’t understand4.Consider the opportunity cost5.Seek the counsel of your spouse
Myth or truth? If you can’t buy it, don’t pay for it! Truth
What is premium? Comparatively small, predictable fee with which individuals or companies can replace an uncertain, and possibly large, financial loss.
What is the person selling an insurance contract called? The insurer.
What is the percentage minimum that a person must insure his/her home to meet the replacement-cost requirement? 80%
What is the most common peril for automobiles? Accidents
What is Liability insurance? Protection from financial losses suffered when you are held liable for others’ losses. You carry this type of insurance, but will not be paid for losses.
When a star running back pays an insurance company to insure his legs, this is an example of what? Transferring risk
True or false? The larger the down payment on can make on a purchase, the easier the payments will fit into one’s budget. True
True or false? Implied warranties are in effect unless the product is sold as is. True
What percentage to cars lose in value during their first year? 25%
The recent explosion in mortgage foreclosures and resulting decline in housing prices occurred partly because millions of American took out ___ mortgages that they did not ___ inappropriate; understand
What should you do with leases/contracts before signing? Read them thoroughly
In the long run, which is more expensive? Buying or renting a home? Renting
When you rent, you will usually pay what in advance? Damage and security deposits
Renters generally pay less money in terms of what? Annual cash flow
What costs are involved with owning? -down payment-mortgage payment-closing costs-maintenance-taxes and insurance
Your mortgage payment is referred to as your PITI. What does each letter stand for? PrincipalInterestTaxesInsurance
When do you have to obtain PMI–mortgage insurance? When you have not put down at least 20% on your down payment.
What three factors affect the mortgage payment? 1.Amount borrowed2.Interest3.Length on loan
What type of mortgage is a fixed rate, fixed term mortgage? Conventional mortgage.
What are the advantages of adjustable-rate mortgage (ARM)? •Rates are usually 1-3% points below conventional mortgage rates.•Some have interest-rate caps.
What are the disadvantages of adjustable-rate mortgage (ARM)? •Interest rate fluctuates.•Payment caps
An increase in the value of a home is called what? equity
Earnest money is the sum of money the home buyer pays to do what? Hold the house while negotiating
What is group health care plan? Sold collectively to an entire group of people rather than to individuals, such as the group health care policies offered by employers.
What is Medicaid? A government health care program for low-income people funded jointly by the federal and state governments.
What best describes a preexisting condition? A previously diagnosed medical condition.
What limits do health insurance policies that limit the amount that will be paid in the hospital room and board have? Annual Limits
What percentage of the population in the US visited a casino in 2011? 27%
What is the Biblical perspective on gambling? It is a sin. It is coveting and stealing.
What are the ABCs of gambling? •Addition•Bankruptcy•Crime
Ten things the gambling industry won’t tell you. 1 ….you can’t win.”2.”…and if you do, we might not pay you.”3. “We promise more than we deliver.”4.”We know everything about you.”5.”We’re a lousy investment.”6.”Addicts keep us in business.”7.”We target your children…”8.”…and your parents”9.”We have your legislators in our pocket.”10.”Our regulation is full of loopholes.”
What is wealth? What you accumulate, not what you spend.
Where is the wealth in America? Over 1/2 of America’s wealth (over $22 trillion) is owned by 3.5% of households.
What percentage of millionaires in America are ordinary people who accumulated their wealth in one lifetime? 80%
What are some ways to become wealthy? •Live well below your means.•Allocate time, energy, and money efficiently,•In ways conducive to building wealth.•Believe financial independence is more important•Than displaying high social status.•Parents do not provide economic support.•Adult children are economically self-sufficient.•Become proficient in targeting market opportunities.•Choose the right occupation.
What are some principles to building wealth? •discipline•sacrifice •hard work
T/F Risk is uncertainty about whether a financial loss will occur and how large the loss will be True
T/F Auto liability insurance is an example of optional insurance since it pays for other people’s losses False
T/F risk reduction generally includes the use of insurance. True
T/F homeowners insurance will pay for injuries to visitors regardless of who is at fault for the losstrue True
T/F earthquake insurance is covered under the standard homeowner’s insurance policies False
The primary difference between speculative risk and a pure risk is that there is a chance for ___ in a speculative risk but a chance for ___ in a pure risk Gain and Loss; only loss
Fire, theft, illness and accidents are all examples of… Perils
Steep staircases with no lighing are an example of a… Physical Hazard
Amy Lou Young purchased a health insurance policy with a $500 deductible and a 40% coinsurance. If Amy Lou incurs $6,500 in covered medical expenses, her policy will pay… 3,600
Lonnie and Paula have a homeowner’s policy with $75,000 coverage and a $250 deductible. Their home recently suffered extensive fire damage in the amount of $50,000. Assuming the preplacement value of the home is $85,000, how much will the insurance company pay on this loss? $49,750
You should not keep the documentation for you personal property… At home
T/F health care plan is a generic name for any program that pays for or provides reimbursement for direct health care expenditures True
T/F open enrollment periods are common in group health care plans True
T/F comprehensive health insurance plans provide coverage for hospital, surgical, and medical expenses into one policy True
T/F Both traditional health insurance and HMOs can be offerd as a high-deductible health care plan True
Your collision coverage generally protects you when you drivea. your own car(s)b. rental carsc. your friends’ carsd. all of these D) ALL OF these
The most obvious health related loss is: a. direct health care expensesb.recuperative are costsc. rehabilitation costsd. income loss while unable to work direct heath care expenses
preventive heath care is encouraged by health maintenance organizations
your health insurance requires that you pay $10 each time you visit the doctor’s office and $5 for each prescription drug. This is an example of a copayment
one cannot rely on workman’s compenation to cover health care needs because it covers only job related injuries and illnesses
T/F the purpose of life insurance is to protect the person whose life is an insurance policy is issued False
T/F a modest funeral can easily cost more than $10,000 True
T/F your need for life insurance will change significantly over the course of your life True
T/F life insurance costs far more than cash-value life insurance True
T/F term life insurance costs far more than cash-value life insurance False
The most accurate and complex method of calculating life insurance needs is the needs-based approach
Adriana is financially responsible for her aged parents. she wants to provide income for her parents for 15 years should she die. adriana earns $48,000 after taxes and believes that her parents could live on 60% of her current income. If insurance funds could be invested at 4 percent after taxes and inflation, how much life insurance does she need? The approximate interest factor is 11.9… $342,720
Straight life is a label sometimes used interchangeably with Whole Life
The person on whose life the policy is written is called the Insured
Shelly Addision’s $125,000 cash-value policy has a cash value of $18,000. If Shelly dies, her beneficiary receives ___. If she does not die but decides to cancel the policy, Shelly will receive ___. $125,000; $18,000

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