Review for Auto Insurance
A. Liability B. Medical Payments C. Uninsured Motorist D. Underinsured Motorist
E. Collision F. Comprehensive G. Personal Injury Protection
Answer the following items by indicating the letter of the auto insurance coverages listed above which apply.
Everyone who drives a car should have this coverage.
Would help repair my car if it sled off an icy road and hit a tree.
Has a medical cost, wage loss, and death benefit that apply to the insured and his family.
Would help repair your car if it was damaged in a hail storm.
Would help pay medical bills of you, family members, and passengers in a hit and run accident.
Covers the medical bills and property damage of the other driver when you are at fault in an accident.
Helps protect you if you have a wreck with another driver who is at fault in the accident, but has very low limits on his (her) liability insurance.
State law requires you to carry this coverage.
You would need these three coverages if you were financing your car.
You do not need this coverage if you have some type of good health coverage (traditional insurance or managed care).
These two coverages should be dropped when your car is four or five years old.
You would not need these coverages if you had good health insurance, and an ample amount of disability and life insurance.
These two coverages have a deductible.
The Jones Family has liquid assets of $800. They have no health, disability, or life insurance. Their car is a 1991 Chevy Malibu.
What auto insurance coverages(s) would the Jones Family be required to have?
Which of the coverages listed at the beginning of the first problem above would you recommend they include in their auto policy? Justify each recommendation.
Would your answer to Part B change if their car was a 2000 Chevy Malibu?
The Jones Family currently has towing coverage in their auto policy. Is this a good idea? Why or why not?
If the Jones Family includes liability coverage in their auto policy, what limits should they carry? Justify your recommendation.
If the Jones Family includes collision and comprehensive coverages in their auto policy, what deductible should they carry? Justify your recommendation.
The Jones Family wants to keep their auto insurance premium as low as possible. Suggest some ways the family might be able to decrease auto insurance premiums.
Assume you were at fault in an accident. You were carrying liability limits of 25/50/15, the minimums required by your state. You insured three people in the accident and their medical bills were $10,000, $30,000, and $15,000 respectively. How much of these medical bills would your auto insurance company pay?
What's the big difference between no-fault auto insurance and traditional liability insurance?
Review for Homeowner's Insurance
Suppose in a storm, furniture that you had paid $2,000 for was completely destroyed. The furniture had an estimated life of 10 years and was 4 years old at the time it was destroyed. It would cost $2,500 to replace the furniture today.
If your homeowner's insurance company reimbursed you on a replacement cost basis, how much would you be paid? (There would be a deductible you would have to pay, but ignore it.)
If your homeowner's insurance company reimbursed you on an actual cash value basis, how much would you be paid? Show your work. (There would be a deductible you would have to pay, but ignore it.)
- While on vacation in Hawaii, you lose a diamond ring worth $4,000.
- During a party at your house, you son gets into a fight and inflicts $3,000 worth of bodily injury on a guest.
- Your young daughter leaves a skate on the sidewalk; the mailman trips over it and breaks his leg.
- The mailman later sues you for negligence.
- A tornado roars through the town where you live and completely demolishes your home and everything in it.
- The tornado not only leveled your home, but also blew away a storage building in your back yard.
- Several big oaks in your yard were uprooted by the tornado.
- Your cat and her young kittens were apparently blown away by the tornado; you haven't seen them now for a week.
- Your car was in the garage at the time of the tornado, but was located shortly thereafter two miles down the road in a neighbor's pond.
- You and your family lived in a local motel and dined out while your home was being rebuilt.
- Your teenage son falls down the stairs and breaks his arm.
- In a state of fury, your wife clobbers you over the head with a rolling pin, because without consulting her you borrowed $15,000 to buy a fishing boat.
Let's hope none of these things ever happen to you!
Review for Health Insurance
A. Hospital Expense B. Surgical Expense C. Physicians Expense D. Major Medical
Choose the answers to the following items from the above list.
Has a deductible, co-payment, cap or ceiling, and a lifetime limit.
Reimburses expenses of an operation either by paying a set amount for the type of operation, or by paying what is reasonable and customary in the region.
Has a per day payment limit, as well as a limit on the number of days covered.
These three are often called "basic insurance."
This one would be beneficial to have if your medical bills were a large amount.
A. Traditional Health Insurance B. Health Maintenance Organizations (HMOs)
C. Preferred Provider Organizations D. Point-of-Service (POS) Plans
Choose the answers to the following questions from the above list.
Which tend to emphasize preventive care?
Which would offer the most freedom of choice?
Which are a form of managed care?
Which involves more paperwork than the others?
Which has a tendency to encourage over treatment of patients?
Which may result in under treatment of patients?
Which has a deductible, coinsurance clause, and a cap or ceiling?
Overall, which would likely be the most expensive?
Which would assign you to a primary care physician (gatekeeper)?
Which would make it easiest for you to see a particular specialist?
Which is a cross between traditional health care and an HMO?
Which will allow you to use doctors and hospitals outside the network, but saddle you with more of the expense involved?
A family with $1,500 in liquid assets has a health insurance policy with a $1,000 deductible, an 80% coinsurance clause, and a $10,000 cap or ceiling. The lifetime limit on their policy is $200,000 per family member.
Are the deductible, coinsurance clause, and cap or ceiling appropriate for this family? Explain.
Is the lifetime limit adequate? Explain.
Review for Disability Income Insurance
If you were buying disability insurance, how would each of the following affect the cost of the policy?
You choose a 30 day waiting period instead of a 90 day waiting period.
You are a teacher rather than a construction worker.
You buy a policy that uses the own occupation definition of disability rather than the any occupation definition.
You purchase a policy that will replace 60% of your pre-disability income instead of one that will replace 70%.
You choose disability payments until age 65 rather than for five years.
You have enough liquid assets to cover 6 months living expenses?
Which of the following waiting periods should you choose? 1 month 3 months 6 months 9 months
Review for Life Insurance
A family as a part of their life insurance program wants to provide for the accomplishment of the following goals:
Provide a college educational fund for their two children $ 80,000 per child
Pay off all debts 150,000
Pay final expenses 20,000
Provide a spouse education fund 50,000
The main breadwinner of the family has a group policy at work that covers his life for $50,000. The family has been able to accumulate $40,000 of investments.
Use the needs approach approach to determine how much additional life insurance is needed.
What amount of insurance would be recommended if the multiple earnings approach is used, and the family has a gross income of $70,000 and a multiple of six is employed?
Which is better: the needs or multiple earnings approach? Explain.
What type of life insurance (term or whole life) should the family buy if the husband and wife lack the discipline to save? Explain.
Of the types of term or whole life (depending on your answer to Part D) which were discussed in class, which type should the family buy in order to get the highest return on the savings part of its policy? Explain.
What type of life insurance (term or whole life) should the family buy if its budget is extremely tight? Explain.
Of the types of term or whole life (depending on your answer to Part D) which were discussed in class, which type should the family buy in order to pay the lowest premium possible? Explain.
A. Straight-term B. Decreasing term C. Limited-pay life D. Single-premium
E. Continuous-premium F. Variable life G. Universal life
Which of the above have a savings feature?
Which would be the least expensive?
Which two would tend to pay the highest rate on savings?
Which has a declining face value with a constant yearly premium?
Which gives the insured the right to choose the type of investment in which the savings part of his policy is invested?
Which might be attractive to someone who has a high income over a short career?
Which discloses more information about the use of your premium, and in addition offers a lot of flexibility?
Why is the financial rating of a life insurance company important? What is the name of the best known rating agency?
Which of the following health policies and life insurance features do expert feel are worth the money? Accident insurance, cancer insurance, the multiple indemnity clause, the waiver of premium benefit.
Answers.
Review for Auto Insurance
A. A; B. E; C. G; D. F; E. C; F. A; G. D; H. A; I. A, E, & F; J. B; K. E, F; L. B, G; M. E, F.
A. Liability
B. Liability, medical payments, underinsured motorist, uninsured motorist
C. Yes, comprehensive and collision would need to be added.
D. No. Self-insure for small losses, and buy insurance to cover potential large losses.
E. 100/300/25 or 100/300/50. These high limits are needed in light of today's high medical bills and court awards. A severe accident that was your fault could bankrupt you as you tried to cover the medical bills of the people you injured, and any court awards to them.
F. $250 to $500. The family has $800 in assets so as high a deductible as possible should be chosen to keep the cost of collision and comprehensive down. Perhaps in this case, the $500 deductible should not be chosen because one claim would only leave the family with $300 in liquid assets. However, an argument could be made for the $500 deductible since the average driver files a claim once every ten years.
G. Raise the deductible on comprehensive and collision as they accumulate more liquid assets, maintain a good driving record, shop around. Many others were given in class.
The medical bills total $55,000, but only $50,000 would be paid. All $10,000 of the first party's medical bills will be paid. Only $25,000 of the second party's medical bills will be paid because the first part of the liability quote tells us $25,000 is the maximum paid to any one person you injure. All $15,000 of the third party's medical bills will be covered.
Under traditional liability insurance, if you and I were in a wreck and whose at fault was not obvious, we may have to go to court to determine who is at fault. This involves lots of time and expense. If I'm clearly at fault in the accident, my insurance is responsible for paying your bodily injury and property damage. In other words, a liability system tends to encourage lawsuits and the associated expenses. Under a no fault system, your insurance company would pay your medical costs, any wages lost due to injury from the accident, and in some cases property damage. My insurance company would cover these expenses for me. Each of us would then agree to not sue to try to get additional funds.
Review for Homeowner's Insurance
A. $2,500. Replacement cost is the cost to repair, rebuild, or replace at today's prices.
B. $1,500. Actual cash value is replacement cost minus depreciation
$2,500 replacement cost - $1,000 depreciation (4/10 x $2,500) = $1,500
B. NC
C. C (MPTO)
D. C (PL)
E. C (D and PP)
F. C (OS)
G. NC*
H. NC
I. NC
J. C (LOU)
K. NC
L. NC
*The homeowner's insurance policy normally covers shrubs and trees damaged by fire or lightning, but not by a storm.
Review for Health Insurance
A. D; B. B; C. A; D. A, B, & C; E. D
A. B, C, & D; B. A; C. B, C, & D; D. A; E. A; F. B, C, & D G. A; H. A. I. B, D J. A; K. C; L. C, D; HMOs will if it is an emergency situation.
No. Let's assume the family has a sickness that results in medical bills of $12,000. After the family pays the deductible of $1,000, there are $9,000 of bills left until the $10,000 ceiling is reached. Since the coinsurance clause is 80 percent, the insurance company will pay 80% of this $9,000 ($7,200) and the family will have to pay the other 20% (20% x $9,000 = $1,800). In other words, the family winds up paying the deductible of $1,000 and a co-payment of $1,800, for a total of $2,800. The problem is the family only has $1,500 in liquid assets. The family should get a policy that has any or all of the following features: a lower deductible, a 90% instead of an 80% coinsurance clause, and a lower cap (perhaps $5,000). Sadly, these better coverages will raise the family's monthly health insurance premium substantially.
No. Financial planners argue that if a person is severely ill, medical costs can run into many thousands of dollars in a short period of time. With the $200,000 lifetime limit, as soon as the insurance company has reimbursed $200,000 of medical expenses, it would have no further obligation. Financial planners recommend a lifetime limit of $1,000,000 per person.
Review for Disability Insurance
A. Increase cost; B. Lower cost; C. Increase cost; D. Lower cost; E. Increase cost
3 months. The main idea is you want to select as long a waiting period as you can (doing so will lower your disability insurance premium) without completing exhausting your liquid assets.
Review for Life Insurance
A. $290,000 B. $420,000 C. Needs. It is more individualized.
D. Whole Life. A part of the monthly premium goes into savings, so by paying your premium you are accumulating savings.
E. Variable. You could invest in a stock fund; stocks have provided a 10 to 12% return over long periods of time.
F. Term. Since term offers only protection (no savings feature), it is much cheaper than whole life.
G. Decreasing term. Since the face value (amount of protection) you have decreases over time, decreasing term is the cheapest type of term, other than perhaps group term.
1. all but A & B. 2. B 3. F & G 4. B 5. F 6. C 7. G
The financial rating is important from the viewpoint you want the insurance company to be around to pay the death benefit when you die. A. M. Best (Best's Reports) is the best known rating service. Experts say buy insurance only from companies which have been rated A+ or A for each of the last ten years.
Waiver of premium clause is the only one experts consider worth the money. Your life insurance premium will be waived if you cannot work due to long term sickness or disability. The others all cost more than any benefit that you are likely to get from them.