Chapter 10 & 11

Question 1

In insurance, the word risk comes closest to meaning

Answer 1

uncertainty.

Question 2

Any condition that increases the probability that a loss-causing event will occur is a

Answer 2

hazard

Question 3

A mechanism for transferring and reducing risk by combining a large number of individuals who share in the financial losses suffered by members of the group is called

Answer 3

insurance

Question 4

If you own a car, which of the following two types of insurance coverage would you be most likely to need?

Answer 4

property and liability insurance

Question 5

You own a single-family dwelling insured for $160,000 under a standard home owner’s insurance policy. What is the amount of insurance on your personal property?

Answer 5

$80,000

Question 6

Which of the following relates to the concept that insurance will not reimburse you for more than what you have actually lost?

Answer 6

principle of indemnity

Question 7

The rights of an insurance company to take action against a negligent third party to obtain reimbursement for payments made to one of the company’s policyholders are called

Answer 7

subrogation rights

Question 8

Frank Smithers tried to enter the Watterson Expressway in his red Ford Explorer and caused a wreck. He had automobile insurance with limits of 20/40/15. He carried no collision coverage. Frank caused $44,000 damage to a Cadillac Escalade which ran off the road, rolled over and was totaled. How much would Frank have to pay out of his own pocket for his liability in this accident over and above what his insurance would cover?

Answer 8

$29,000

Question 9

An umbrella liability policy pays for

Answer 9

liability losses that arise out of any activity

Question 10

An insurance policy requirement that you pay an initial dollar amount of a loss is called a(n).

Answer 10

coinsurance

Question 11

Lyle Coleman’s health insurance policy will pay 80 percent of all covered expenses after he pays first $500 per year. This policy definitely has

Answer 11

coinsurance and a deductible.

Question 12

provide(s) preventative care as well as other types of care for a set monthly fee which is considered to be advance payment for the care received.

Answer 12

Health maintenance organization (HMO)

Question 13

You can help yourself afford a longer benefit period under a disability income insurance plan by selecting a longer

Answer 13

waiting period.

Question 14

Persons who have no health insurance through their employer or their employer provides only a high-deductible plan can make tax-sheltered deposits into an investment account called a __________ from which they can pay medical expenses.

Answer 14

health savings account

Question 15

Which of the following types of disability income insurance policies will only provide benefits if you can no longer perform the occupation you had at the time you became disabled?

Answer 15

own-occupation policy

Question 16

Which of the following is a general term used to describe an HMO, health insurance or another plan that pays for or provides reimbursement for direct health care expenditures?

Answer 16

health care plan

Question 17

Long-term custodial care is not covered by health insurance because the care is

Answer 17

not medically necessary.

Question 18

Which of the following is generally true regarding conversion of group coverage to individual coverage?

Answer 18

Higher policy premiums will have to be paid.

Question 19

Sarah Armstrong has an insurance policy that pays up to $500 per day for room and board, up to $150,000 per episode, and up to $500,000 per year. When Sarah had a stroke, she was in the hospital for 25 days. While the room and board charges were only $450 per day, the additional cost of the hospitalization was $140,000. How much would the insurance pay?

Answer 19

$150,000

Question 20

Which pair of terms is characteristic of consumer driven health care?

Answer 20

High-deductible health care plan and health savings account