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Personal Finance > Asset and Income Protection > Flashcards

Asset and Income Protection Flashcards

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1
Q

Concept

is a mechanism for transferring and reducing pure risk through which a large number of individuals share in the financial losses suffered by members of the group as a whole

A

insurance

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2
Q

Concept

is the contract between the person buying insurance (the insured) and the insurance company (the insurer)

A

insurance policy

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3
Q

Concept

is any condition that increases the probability that a peril will occur

A

hazard

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4
Q

List

three types of hazards

A
  • physical hazard
  • morale hazard
  • moral hazard
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5
Q

Concept

particular characteristic of the insured person or property that increases the change of loss

A

physical hazard

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6
Q

Concept

exists when a person is indifferent to a peril

A

morale hazard

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7
Q

Concept

relates to the possibility that the insured person will want or even cause a peril to occur in order to collect reimbursement from the insurance company

A

moral hazard

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8
Q

Name the hazard

an insurance company may limit or deny coverage

A

if a loss occurs as a result of a morale or moral hazard

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9
Q

Concept

states that insurance will pay no more than the actual financial loss suffered.

A

principle of indemnity

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10
Q

Describe

principle of indemnity

A
  • states that insurance will pay no more than the actual financial loss suffered.
  • an automobile insurance policy will pay only the actual cash value—the replacement value less the value of depreciation
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11
Q

Concept

is a method by which the insured and the insurer share proportionately in the payment for a loss

A

coinsurance

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12
Q

Formula

deductible and coinsurance reimbursement formula

A

R = (1-CP)(L-D)
Where
* R = reimbursement
* CP = coinsurance percentage
* L = loss
* D = deductible

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13
Q

Concept

an action taken by the insured to lessen the severity of a loss if a peril occurs

A

loss reduction

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14
Q

insurance consists of two basic elements

A
  1. the reduction of risk and
  2. the sharing of losses
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15
Q

Concept

individual insurance purchasers benefit regardless of whether they actually suffer a loss

A

reduction of risk
* this is the essence of insurance

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16
Q

List

four types of applicants in order of desirability

A
  1. preferred
  2. standard
  3. substandard
  4. unacceptable
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17
Q

Concept

other structures on the property aside from the main residence

A

appurtenant structures

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18
Q

Describe

named-peril policies

A

cover only those losses caused by perils that are specifically mentioned in the policy

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19
Q

Concept

cover only those losses casued by perils that are specifically mentioned in the policy

A

named-peril policies

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20
Q

Concept

covers losses caused by all perils other than those specifically excluded by the policy

A

all-risk policies, also called open-peril policies

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21
Q

List

perils specifically excluded from all-risk policies

A
  • flood
  • earthquake
  • sewage backup
  • tsunami
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22
Q

Describe

HO-1 (Basic Form)

A
  • Perils 1-4, 6, 8-12
  • based on replacement cost
  • Comprehensive - $300,000; personal - $1,000; liability - $500
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23
Q

Describe

HO-2 (Broad Form)

A
  • Perils 1-16
  • based on replacement cost
  • special limits of liability
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24
Q

Describe

HO-3 (Special Form)

A
  • All perils except those specifically excluded for buildings
  • 1-16 on personal property (does not include glass breakage)
  • based on replacement cost
  • special limits of liability
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25
Q

Describe

HO-4 (renter’s insurance)

A
  • perils 1-16
  • structure not insured
  • maximum $500 per item
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26
Q

Describe

HO-6 (condominium insurance)

A
  • perils 1-16
  • structure not covered unless owned solely by the insured
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27
Q

Concept

is the most common type purchased by homeowners

A

HO-3 Special Form

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28
Q

Concept

is a named-perils policy that provides actual-cash value protection on the dwelling; not replacement protection.

A

HO-8 older home form

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29
Q

List

in keeping with the large loss principle you need to select appropriate amounts of coverage on your

A
  1. dwelling,
  2. its contents, and
  3. liability losses
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30
Q

Concept

stipulates that a home must be insured for a specified percentage of its replacement value

A

replacement-cost requirement

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31
Q

Describe

inflation guard protection

A

protection provided by your insurance company that increases your coverage automatically each year to keep up with inflation

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32
Q

Concept

is a special insurance endorsement that pays for demolishment and/or repairs to meet modern building standards

A

law and ordinance protection

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33
Q

Concept

insurance for:
* if a home was built a long time ago, and is likely out of code, and;
* is in an area that has experienced natural disasters

A

law and ordinance protection

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34
Q

Concept

historically, property insurance policies paid only this amount, which represents the purchase price of the property less depreciation

A

actual-cash value (ACV)

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35
Q

instances of special limits of liability for HO-2, HO-3

A
  • money, coins, bank notes - $200
  • computers - $5,000
  • securities, stocks, deeds - $1,000
  • watercraft, trailers, outboard motors - $1,000
  • jewelry, watches, furs - $1,000
  • silverware, goldware - $2,500
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36
Q

four distinct types of coverage

automobile insurance

A
  1. liability insurance
  2. medical payments insurance
  3. protection against uninsured and underinsured motorist, and
  4. insurance for physical damage to the insured automobile
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37
Q

Describe

100/300/50 policy

A
  • $100,000 per-person bodily injury limit
  • $300,000 per-accident bodily injury limit
  • $50,000 per-accident property damage liability limit
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38
Q

Why are losses caused by floods, sinkholes, and earthquakes excluded from standard homeowner’s policies?

A

These types of losses are subject to adverse selection
* occurs when people who are most likely to suffer such losses will know that

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39
Q

which losses are uninsurable

A
  • fortuitous loss
  • financial losses
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40
Q

Define

fortuitous loss

A
  • unexpected in terms of both their timing and their magnitude
  • a loss caused by a lightning strike and fire to your home is fortuitous
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41
Q

Concept

a loss that unexpected in terms of both its timing and its magnitude

A

fortuitous loss

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42
Q

Define

financial loss

A
  • any decline in the value of income or assets in the present or future
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43
Q

Concept

  • is the price charged for each unit of insurance coverage
A

insurance rate

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44
Q

Concept

  • represents the average cost of providing coverage to various classes of insureds
A

insurance rates

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45
Q

Concept

provides health insurance coverage of the uninsured to:
* lower-income Americans via a federally-funded expansion of Medicaid

A

ACA

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46
Q

Concept

provides subsidized policies to be sold by private insurers, who cannot discriminate based on medical history, and subsidized according to one’s income

A

ACA

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47
Q

Concept

required the 15 percent of Americans without health insurance to purchase coverage or pay a penalty tax

A

ACA

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48
Q

Concept

provided coverage to the children of a covered parent whose children were under the age of 26

A

ACA

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49
Q

Describe

rights of the ACA

A
  • coverage cannot be dropped for any reason except fraud
  • eliminates annual and lifetime limits on health care
  • mandates insurers cover wellness and preventative services with no out-of-pocket costs
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50
Q

Concept

a healthcare plan that meets the government’s standard for its required “10 essential benefits” of adequate coverage

A

quality healthcare plan

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51
Q

Concept

The ACA law requires that all Americans and legal residents buy health coverage no matter how sick and regardless of any pre-existing health problems

A

individual mandate

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52
Q

purpose of

individual mandate

A

to encourage all Americans to buy health insurance bencause anyone receives free urgent medical care passes the costs onto society

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53
Q

Concept

if you do not have health insurance, you will be assessed a tax penalty

A

individual shared responsibility fee

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54
Q

Per individual mandate

how long are you allowed to have a gap in coverage

A

up to three months

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55
Q

List

essential health benefits

A

established by ACA
1. ambulatory patient services
2. emergency services
3. hospitalization
4. maternity and newborn care
5. mental health and substance use disorder
6. prescription drugs
7. rehabilitative service and devices
8. laboratory services
9. preventive and wellness services
10. pediatric services

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56
Q

Describe

modified adjusted gross income

A
  • is the figure the IRS uses to calculate one’s health care penalty
  • for most people, MAGI is the same as AGI
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57
Q

Concept

  • is the figure the IRS uses to calculate one’s health care penalty
  • for most people, it is the same as AGI
A

modified adjusted gross income MAGI

58
Q

Concept

Americans may purchase federally regulated and subsidized insurance in their states through these

A

health insurance exchanges (HIX)

59
Q

Define

health insurance exchanges

A

Americans may purchase federally regulated and subsidized insurance in their states through these marketplaces

60
Q

Concept

is the cost of the second-lower-cost silver plan in the area where a person lives

A

benchmark premium

61
Q

Define

benchmark premium (ACA)

A
  • is the cost of the second-lower-cost silver plan in the are where a person lives
  • the tax credit equals the benchmark premium minus what the individual is expected to pay based on their family income
62
Q

List

Today only three factors can affect the cost of your health insurance

A
  1. age
  2. place of residence, and
  3. number of people in your family
63
Q

Per ACA plans

bronze out-of-pocket expenses

A

you pay 40 percent

64
Q

per ACA plans

silver out-of-pocket expenses

A

you pay 30 percent

65
Q

per ACA plans

gold out-of-pocket expenses

A

you pay 20 percent

66
Q

per ACA plans

platinum out-of-pocket expenses

A

you pay 10 percent

67
Q

Concept

is a generic name for any program that pays for or provides reimbursement for health care expenditures

A

health care plan

68
Q

one key method to reduce health care costs is …

A

… to require people to use managed care

69
Q

List

the three health care plans offered by the government

A
  • Workers’ Compensation
  • Medicare
  • Medicaid
70
Q
  • you may see whatever doctors or specialists you like, with no referrals required
  • you pay up front for services, and then submit a claim for reimbursement
A

fee-for-service or idemnity plan

71
Q

Describe

fee-for-service or idemnity plan

A
  • you may whatever doctors or specialists you like, with no referrals required
  • you pay up front for services, and then submit a claim for reimbursement
72
Q

Concept

the amount paid fora medical service in a geographic area based on what providers in the area usually charge for the same or similar medical services

A

usual, customary, and reasonable (UCR) rate

73
Q

Define

usual, customary, and reasonable (UCR) rate

A

the amount paid fora medical service in a geographic area based on what providers in the area usually charge for the same or similar medical services

74
Q

Concept

a form of insurance providing medical benefits and wage replace to employees injured in the course of employment in exchange for mandatory relinquishment of the employee’s right to sue his or her employer for the tort of negligence

A

workers’ compensation plans

75
Q

Describe

Medicare Part A

A
  • a hospitalization portion of the program
  • it requires no premium
  • most people do not pay a monthly premium because they or a spouse has 40 or more quarters of Medicare-covered employment
76
Q

Describe

Medicare Part B

A
  • is the supplementary health expense insurance portion for outpatient care, doctor office visits, and certain other services
  • requires a monthly premium of about $130; more for higher income individuals
  • co-pay is 25 percent
77
Q

Describe

Medicare Part D

A
  • provides an optional prescription coverage plan
  • participants pay an initial portion of prescription costs, about $30 a month
78
Q

Describe

Part C

A
  • Medicare Advantage Plans
  • health care plans that offer Medicare benefits through private health plans, such as HMOs and PPOs.
  • Medicare pays Medicare Advantage Plans to provide the coverages of Plan A and Plan B
79
Q

Describe

Medigap policies

A
  • these policies provide supplmenet medical insurance to cver gaps in standard Medicare coverage
80
Q

Concept

  • When you no longer work for an employer that offers a group health care plan, and you want to continue coverage
  • These rules allow you to remain a member for as long as 18 months if you worked for a company with coverage for more than 20 workers
A

COBRA rights

81
Q

Describe

COBRA rights

A
  • When you no longer work for an employer that offers a group health care plan, and you want to continue coverage
  • These rules allow you to remain a member for as long as 18 months if you worked for a company with coverage for more than 20 workers
82
Q

Concept

part of a health insurance policy that prevents you from collecting more than 100 percent of covered charges by obtaining benefits from more than one policy

A

coordination of benefits clause

83
Q

Concept

coordination of benefits clause

A

part of a health insurance policy that prevents you from collecting more than 100 percent of covered charges by obtaining benefits from more than one policy

84
Q

List

two essential benefits that are now part of the required 10 essential benefits

A
  • dental
  • vision
85
Q

Clause

requires you to pay a proportion of any loss suffered

A

coinsurance clause

86
Q

Concept

limits the annual out-of-pocket payments required of the patient when meeting the coinsurance

A

coinsurance cap

87
Q

is a criterion for deciding when the insured becomes eligible for long-term care benefits

A

inability to perform a certain number of activities of daily living (ADLs)

88
Q

List

three levels of nursing care

A
  • skilled nursing care
  • interemedicate care
  • custodial care
89
Q

Concept

is intended for people who need intensive care, meaning 24 hours a day supervision and treatment by a registered nurse, under the direction of a doctor

A
  • skilled nursing care
90
Q

Concept

is appropriate for people who do not require around the clock nursing but who are not able to live alone

A
  • intermediate care
91
Q

Concept

is suitable for many people who do not need skilled nursing care, but who require supervision

A
  • custodial care
92
Q

Concept

certain types of these plans provide benefits to workers who become disabled while still employed

A

pension plans

93
Q

Describe

own-occupation policy

A

provides benefits if you can no longer perform the occupation you had at the time you became disabled

94
Q

Describe

any-occupation policy

A

will provide full benefits only if you cannot perform any occupation

95
Q

Concept

is essentially an income replacement policy, as it makes up a portion of the difference between what you were earning prior to becoming disabled, and what you can earn while disabled

A

any-occupation policy

96
Q

Which disability policy is more generous

A

own-occupation policy

97
Q

Describe

residual clause in a disability policy

A

allows for some reduced level of disability income benefits when a partial, rather than full, disability occurs.

98
Q

Identify three policy provisions to consider when purchasing disability income insurance

A
  1. residual clause
  2. cost-of-living adjustments
  3. guaranteed renewability clause
99
Q

three types of advanced directives

A
  1. living will
  2. health care proxy, and
  3. durable power of attorney
100
Q

Concept

allows you to document your specific wishes in advance concerning medical treatments and end-of-life care

A

living will

101
Q

Concept

a form designed to be actionable throughout an entire community, as it is immediately recognizable and ca be used by doctors and first responders

A

Physicians Order for Life Sustaining Treatment

102
Q

Length of policy

term life insurance

A

defined period of time, usually 10 to 20 years

103
Q

Length of policy

whole life insurance

A

designed to last a lifetime

104
Q

Length of policy

disability insurance

A

for the duration of employment

105
Q

length of plicy

automobile insurance

A

for the duration of automobile ownership

106
Q

Payout

term life insurance

A

pays a predetermined sum or percentage if you die during the term

107
Q

Payout

whole life insurance

A

Pays a predetermined sum or percentage when you die

108
Q

Payout

disability insurance

A

provides recurring payments to replace a portion (50-65%) of income lst due to illness or injury that prevents normal employment

109
Q

Term

homeowner insurance

A

for the duration of property ownership

110
Q

Duration of coverage

automobile insurance

A

for the duration of automobile ownership

111
Q

pros and cons

term life insurance

A

pros
* less expensive than whole life insurance

cons
* coverage ends when the term ends

112
Q

pros and cons

whole life insurance

A

pros
* accumulates a cash value as you pay premiums, which you can borrow against or surrender for cash

cons
* more expensive than term life insurance

113
Q

pros and cons

disability insurance

A

pros
* covers most illnesses that make you unable to work—both in the short and long term

cons
* does not replace 100% of lost income

114
Q

pros and cons

automobile insurance

A

pros
* coverage can be scaled to be more comprehensive

cons
* mandatory minimum coverage varies from state to state; more comprehensive coverage can require significantly higher rates

115
Q

Concept

are one-time expenses occuring just prior to or after death

A

final-expense needs

116
Q

Concept

once someone else becomes financially dependent on you, your income and empoloyee benefits will be the major financial loss resulting from your premature death

A

income-replacement needs

117
Q

Concept

  • families often need a period after the death of a loved one
  • this period may last for several months to two or three years
A

readjustment-period needs

118
Q

Concept

  • a family that has bought sufficient life insurance for the replacement of lost income probably will not need to make specific insurance provisions for the repayment of most debts
  • amount of life insurance to pay off all nonmortgage debt in order to simplify the finances of the survivors
A

debt-repayment needs

119
Q

Concept

are paid to a surviving spouse with minor children or to the children directly if there is no survivng spouse

A

social security survivor’s benefits

120
Q

Describe

Social Security survivor’s benefits

A
  • are paid to a surviving spouse with minor children or to the children directly if there is no survivng spouse
  • once the youngest child reaches age 18, surviving spouse enters the Social Security survivor’s blackout period
121
Q

Describe

Social Security survivor’s blackout period

A
  • a spouse is no longer eligible for benefits once the child reaches age 18
  • a spouse is no longer eligible for benefits once the spouse reaches age 60
122
Q

Concept

is the simplest form of insurance because it protects against only one peril—death

A

life insurance

123
Q

person

this payment to the person named in the policy to receive the funds will occur within a few days once a death certificate is presented to the insurance company

A

beneficiary

124
Q

approaches

what dollar amount of life insurance do you need?

A
  • a multiple-of-earnings approach
  • needs-based approach—more accurate
125
Q

Concept

insurers design rate classification schedules to help them determine an individual’s chance of loss

A

underwriting

126
Q
A
127
Q

two types of life insurance

A
  • term life insurance—pure because it pays benefits only if the insured person dies within the time period (term)
  • cash-value life insurance—pay benefits at at, but also include savings/investment element
128
Q

Concept

these policies pay benefits at death, but also include a savings/investment element that can provide benefits to the policyholder prior to the death of the insured person

A

cash-value life insurance

129
Q

Concept

  • is often described as “pure protection” because it pays benefits only if the insured person dies within the time period (term)
A

term life insurance

130
Q

Concept

  • this factor represents the value of the investment aspect of the life insurance policy
  • it builds up in a policy either at a fixed rate or variable rate
A

cash value factor

131
Q

pros and cons

cash-value life insurance

A

pros
* covers more than term life insurance

cons
* 5 to 8 times more cost than term life insurance
* there are much better options for investing

132
Q

Concept

life insurance policies generally include a clause that place a time limit—usually two year after the issuance of the policy—to deny a claim

A

incontestability clause

133
Q

Five basic components of

insurance policies

A
  1. declarations
  2. insuring agreements
  3. exclusions
  4. conditions
  5. endorsements
134
Q

settlement options

death benefits

A
  1. lump sum payment
  2. installment payments for a fixed period
  3. income payments of a fixed amount
  4. life interest income payments only
  5. income payments for life
135
Q

Concept

  • important for policyholders
  • are amounts stipulated in a life insurance policy that protect the cash value, if any has accumulated, in the event that the policyholder chooses at some point to not pay or fails to pay the premiums
A
  • nonforfeiture values
136
Q

the policy owner can receive the accumulated cash value funds in one of three ways

A
  1. may continue the policy with the original face amount but for a time period shorter than the original policy
  2. simply surrender the policy and receive the cash surrender value—cash value minus any surrender charges
  3. may be continued on a paid-up basis, with a new and lower face amount that can be purchased with the accumulated funds
137
Q

Concept

allows the payment of a portion of the death benefit prior to death if the insured contracts a terminal illness or requires long-term mdedical care

A

accelerated death benefits clause

138
Q

Concept

specialize in buying life insurance policies from terminally ill insureds for a percentage of the death benefit in return for being named owner and beneficiary on the policy.

A

Viatical companies

139
Q

Concept

this option permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without taking a health exam.

A

guaranteed insurability

140
Q

guaranteed insurability vs guaranteed renewability

A

guaranteed insurability
* guaranteed insurability is an option is cash-value policy
* allows the policyholder to increase the face amount of the policy without a health exam

guaranteed renewability
* guaranteed renewability is an option in term-life insurance

Personal Finance (10 decks)

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