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FIN3040 - Risk and Insurance > Chapter 20 > Flashcards

Chapter 20 Flashcards

1
Q

The average car loan runs for nearly ____ years and costs more than $______ per month

A

6 years, $500

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2
Q

What are 3 tips for buying a car?

A

1) Pay in cash
2) Buy a car that has little depreciation
3) Take your time to find a reliable bargain

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3
Q

What is a good rule of thumb for how much you should spend on a car?

A

Value of vehicles in your household should not exceed more than one half of your income.

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4
Q

How long should you plan to keep a car after it has been paid off?

A

7 years

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5
Q

New cars lose more than ________ of their value in the first year, _______ of their value in the first 3 years.

A

1/3, 60%

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6
Q

What are the steps to the “saver plan” for buying a car?

A

Never take out a car loan for more than 3 years, pay off your car as quickly as possible, then use the money you’d be paying to put into a savings account to buy your next car in cash

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7
Q

You and your family members suffer injuries in an auto accident caused by a hit-and-run driver. What part of your PAP covers this?

A

Part C: Uninsured motorist

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8
Q

Your auto is accidentally damaged by some students playing baseball. What part of your PAP covers this?

A

Part D: Losses Other Than Collision

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9
Q

A person takes legal action against you for injuries you caused in an auto accident. What part of your PAP covers this?

A

Part A: Liability Coverage

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10
Q

Your auto needs repairs because you hit a tree. What part of your PAP covers this?

A

Part D: Collision

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11
Q

While riding with you in your auto, your nephew is injured in an accident & incurs various medical payments. What part of your PAP covers this?

A

Part B: Medical

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12
Q

Your auto is damaged due to driving through a flooded street. What part of your PAP covers this?

A

Part D: Losses other than collision

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13
Q

Your golf clubs are stolen out of your car at a football game. What part of your PAP covers this?

A

Not Covered: Covered under homeowners

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14
Q

A motorcycle collides with your auto while you are driving to the grocery store. What part of your PAP covers this?

A

Part D: Collision

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15
Q

You are injured while riding your motorcycle. What part of your PAP covers this?

A

Not Covered: Separate Motorcycle Insurance needed

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16
Q

You go on a picnic & your car will not start. You have it towed to the nearest car repair shop. What part of your PAP covers this?

A

Covered: Towing and Labor Coverage

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17
Q

The custom painted mural on your truck is chipped during a hailstorm. What part of your PAP covers this?

A

Not covered: Anything custom is not included

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18
Q

What is the difference between primary vs excess insurance?

A

Primary insurance is the first policy that covers a loss in the event of a trigger. Excess policy covers a claim after the primary coverage has been used up.

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19
Q

What is the difference between split and single limit coverage?

A

Split limit breaks up coverage (ex: 15/30/10) while single limit coverage gives a blanket number that the insurance company is willing to pay

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20
Q

How much is recommended for a split limit policy and what does each number represent?

A

100/300/50 policy is recommended.
100: Up to $100,000 will be paid to you in the event of bodily injury or injury liability per person.
300: Up to $300,000 will be spent on one accident.
50:$50,000 limit for property damage liability.

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21
Q

What are the 6 basic parts of the Personal Auto Policy?

A

Coverage A
Coverage B
Coverage C
Coverage D
Coverage E
Coverage F

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22
Q

What is Coverage A in the Personal Auto Policy?

A

Coverage A: Bodily Injury Liability
Covers the risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries caused by an accident for which you were responsible.

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23
Q

What is Coverage B in the Personal Auto Policy?

A

Coverage B: Medical Payments
Covers the cost of healthcare for persons injured in your automobile, including yourself

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24
Q

What is Coverage C in the Personal Auto Policy?

A

Coverage C: Uninsured / Underinsured Motorists
Pays for the cost of injuries if your vehicle is hit by a person without insurance or a person who doesn’t have enough insurance

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25
Q

What is Coverage D in the Personal Auto Policy?

A

Coverage D: Damage to Your Auto
- Collision, regardless of who is at fault. But if you are not at fault your insurance company will try and collect from the other party’s insurance
- Losses other than collision
Fire
Theft
Vandalism
Glass Breakage
Hail, sand, wind storm
Car rolling downhill into a tree

26
Q

What is Coverage E in the Personal Auto Policy?

A

Coverage E: Duties After an Accident

27
Q

What is Coverage F in the Personal Auto Policy?

A

Coverage F: General Provisions

28
Q

What happens when traveling in states with different liability limits than your own policy?

A

Your personal auto policy will adapt to liability limits in foreign states if they vary from coverage in home state.

29
Q

What is South Carolina’s liability limit?

A

15/30/10

30
Q

What are the primary factors used to calculate an insured’s ratings?

A

Age
Gender
Marital status
Use of Automobile
Marriage

31
Q

Until what age is somebody considered an underage driver?

A

Age 25

32
Q

Until what age can someone receive a good student discount?

A

Age 24

33
Q

Until what age can someone receive driver education credits?

A

Age 21

34
Q

What are the seconday factors used to calculate an insured’s ratings?

A

Type of vehicle
Driving record,
# of insured (multiple car discount)
Vehicle performance

35
Q

How is vehicle performance when insurance companies calculate customer rating factors?

A

Standard - Lowest rate
Intermediate
Sports
High - Highest rate

36
Q

How are convictions / points classified on a driver’s license?

A

Class 0
Class 1
Class 2
Class 3 - DWI

37
Q

What is the lowest rating factor possible and who would receive it?

A

.45
64 year old
Farm use vehicle
Lives on a farm
Multiple-car discount

38
Q

What is the highest rating factor possible and who would receive it?

A

5.95
17 year old unmarried male
Owner or principle operator of one vehicle
High-performance car to work 15 minutes

39
Q

Why might it be beneficial for a youthful driver to not purchase collision coverage?

A

One claim can cause insurance cost to rise significantly
1. Any claim will cause rates to increase
2. It takes 3 years of claim-free driving before rates will be lowered

40
Q

Uninsured motorist coverage has seven general exclusions summarized as followed:

A
  1. No uninsured motorist coverage on vehicle
  2. Primary coverage under another policy
  3. Settling a claim without the insurer’s consent
  4. Using the vehicle as a public or livery conveyance
  5. No reasonable belief this person is entitled to use the vehicle
  6. No benefit to workers compensation insurer
  7. No punitive damages
41
Q

Millionaires Do:

A
  • Believe millionaire status is available to them
  • Understands each starts at a different place, don’t let obstacles stop them
  • Come from all walks of life, all different parts of country, and all different socioeconomic backgrounds
42
Q

Millionaires Don’t:

A
  • Buy into common myths about wealth and the wealthy
  • Make excuses or believe their success depends on anyone else
  • Let fear and doubt keep them from winning
43
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

A) Briefly describe the major coverages that are available in a PAP.

A

The major coverages under the PAP consist of the following:
· Part A—Liability Coverage
· Part B—Medical Payments Coverage
· Part C—Uninsured Motorists Coverage
· Part D—Coverage for Damage to Your Auto

44
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

B) Which of the available coverages should Tanya purchase?

A

Liability coverage (Part A) is the most important coverage that Tanya should buy since it would cover her for legal liability arising out of the negligent operation of an automobile. Since many motorists drive without liability insurance, the uninsured motorists coverage should also be purchased. Medical payments coverage could be purchased if she consistently drives with other passengers in her car or if she has no individual or group health insurance that would cover her in an accident.

45
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

C) Which of the available coverages should Tanya not purchase?

A

Coverage for damage to your auto (Part D) should not be purchased. Tanya is driving an older automobile with a limited market value, which should not be insured for physical damage losses.
She can retain the entire exposure.

46
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. Dani, Tanya’s roommate, borrows Tanya’s car with her permission and injures another motorist. Dani is at fault.
A

Dani is covered under Tanya’s policy. Tanya’s PAP will pay the liability claim up to the policy limits.

47
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. Tanya is driving under the influence of alcohol and is involved in an accident where another motorist is seriously injured.
A

The loss is covered. Because driving under the influence of alcohol is a serious offense,
Tanya’s insurer will probably refuse to renew her policy or will substantially increase the premium.

48
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. During the football season, Tanya charges a fee to transport fans from a local bar to the football stadium. Several passengers are injured when Tanya suddenly changes lanes without signaling and hits another car.
A

The loss is not covered. Using a vehicle as a taxi or public livery conveyance is specifically excluded.

49
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. Tanya drives her boyfriend’s car on a regular basis. While driving the boyfriend’s car, she is involved in an accident in which another motorist is injured. Tanya is at fault.
A

The loss is not covered under Tanya’s policy. The PAP does not cover non-owned vehicles driven on a regular basis or made regularly available for use.

50
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. Tanya rents a car in England where she is participating in a summer study abroad program. The car is stolen from a dormitory parking lot.
A

The loss is not covered. The PAP provides coverage only in the United States, its territories and possessions, Puerto Rico, and Canada.

51
Q

Tanya, age 21 is a college student who recently purchased her first car from a friend who had financial problems. The vehicle is a high-mileage, 2012 Toyota Corolla with a current market value of $3,000. Assume you are a financial planner and Tanya asks your advice concerning the various coverages in the PAP.

Assume that Tanya purchases the PAP coverages that you have recommended (A,B,C). To what extent, if any, would her insurance cover the following situations?

  1. Tanya owns a motorcycle. To what extent, if any, does Tanya’s PAP cover the motorcycle?
A

The PAP does not cover motorcycles. However, coverage can be obtained by adding the miscellaneous-type vehicle endorsement to the policy.

52
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

A) Alan’s son, age 16, is driving a family car, runs a red light, and kills a pedestrian. The family of the deceased pedestrian sues and damages are awarded in the amount of $500,000.

A

Covered. Alan’s son is covered as a member of the family. The maximum amount paid would be $100,000, which is the per-person limit.

53
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

B) Alan borrows a friend’s car to the supermarket. He fails to stop at a red light and negligently smashes into another motorist. The other driver’s car, valued at $15,000, is totally destroyed. In addition, repairs to the friend’s car are $5,000.

A

Covered. The liability insurance on the borrowed car is primary, Alan’s insurance is excess. Damage to the other car is covered under property damage liability for $15,000. Collision coverage, if any, on the friend’s car would be primary, and Alan’s policy would be excess. If there is no collision coverage on the friend’s car, Alan’s policy would be primary and would pay $4,500.

54
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

C) Alan’s daughter, Heather, attends college in another state and drives a family auto. Heather lets her boyfriend drive the car, and he negligently injures another motorist. The boyfriend is sued for $50,000.

A

As the daughter’s boyfriend had permission to use the vehicle, he would have coverage under Alan’s policy, and $50,000 would be paid if he were legally liable.

55
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

D) Alan’s wife is driving a family car in a snowstorm. She loses control of the car on an icy street and smashes into the foundation of a house. The property damage to the house is $30,000. The damage to the family car is $8,000. Alan’s wife has medical expenses of $5,000.

A

Covered. Property damage to the house in the amount of $30,000 would be paid. The amount paid for damage to the family car is $7,500. The wife’s medical expenses in the amount of $5,000 are also paid.

56
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

E) Alan is walking across a street and is struck by a motorist who fails to stop. He has bodily injuries in the amount of $15,000.

A

Covered. Under the uninsured motorists coverage, Alan would recover $15,000

57
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

F) Alan’s car is being repaired for faulty brakes. While road testing the car, a mechanic injures another motorist and is sued for $50,000.

A

Not covered. The mechanic is not covered under Alan’s policy. If a person is employed or engaged in the automobile business, liability arising out of operation of vehicles in the automobile business is excluded. However, the exclusion does not apply to the operation of any covered auto by the named insured, family member, or partner.

58
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

G) Alan’s car hits a cow crossing a highway. The cost of repairing the car is $2,500.

A

Covered. This loss is covered under Part D (coverage for damage to your auto). Loss caused by contact with a bird or animal is considered to be other-than-a-collision loss. The amount paid would be $2,000.

59
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

H) A thief breaks a car window and steals a camera and golf clubs locked in the car. It will cost $400 to replace the damaged window. The stolen property is valued at $500.

A

The broken window is covered as an other-than-a-collision loss; however, as the loss is less than the deductible, nothing would be paid. The theft of the camera and golf clubs is not covered under the PAP.

60
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

I) Alans’ wife goes shopping at a supermarket. When she returns, she finds that the left rear fender has been damaged by another driver who did not leave a note or his/her name. The cost of repairing the car is $2,000.

A

Covered. This loss is considered to be a collision loss. The amount paid is $1,500.

61
Q

Alan has a PAP with the following coverages:
Liability coverages: $100,000/$300,000/$50,000
Medical payments coverages: $5,000 per person
Uninsured motorists coverage: $25,000 per person
Collision loss: $500 deductible
Other-than-Collision loss: $500 deductible

J) Alan works for a construction company. While driving a large cement truck, he negligently injures another motorist. The injured motorist sues Alan for $25,000.

A

Not covered. Liability coverage for commercial vehicles and large trucks used in a business, such as a large cement truck, is excluded under the liability section of the PAP.

62
Q

Why Insurers were More Exposed to Cars than Homes in Hurricane Harvey?

A

Because car insurance typically includes flood insurance while homeowners does not

FIN3040 - Risk and Insurance (12 decks)

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