Chapter 9 Test Flashcards
An essential financial planning tool.
Insurance
What is the purpose of insurance?
To transfer risk
What can happen without proper insurance?
Certain losses can bankrupt you.
What does Conventional wisdom say?
That you should transfer risk.
What is Break-Even Analysis?
Method used to evaluate the wisdom of a financial decision by determining the length of time it will take for the cost of the decision to be recouped
What does raising your deductibles do?
Keeps your premiums down.
What should you do if you have a full emergency fun?
Raise your deductible.
T/F you should carry adequate liability?
True
What should you consider on older cars?
Dropping collision.
What is Collision?
Portion of auto insurance that covers losses due to vehicle damage in an accident
What is Comprehensive?
Pays for damage to your car that is not a result of an accident.
What kind of homeowner’s insurance should you have?
Guaranteed replacement cost.
What is a good buy once you have some assets?
Umbrella liability policies
What is Umbrella Liability Insurance?
High-limit insurance policy that acts as a protective covering over your home and car insurance against liability caused by an accident
What is Renter’s Insurance?
Type of insurance that provides coverage for accidents, damages and losses in a rental (apartment or house) or dormitory
T/F Increase your deductible and/or coinsurance amount?
True
Increase your stop-loss, but never decrease your maximum pay?
True
What is the HSA?
Health Savings Account, is a tax-sheltered savings account for medical expenses that works with a high deductible insurance policy.
What is Stop-Loss?
Total out-of-pocket expense for health insurance; once reached, the insurance company will pay 100%
What is maximum payment?
The amount an insurance company will pay before you are dropped from coverage (with health insurance keep at least a $1 million maximum pay)
What percent of the population is disabled?
18% or 51 million
What is disability income designed to do?
Replace income lost due to a short-term or permanent disability.
T/F Try to buy disability insurance that pays if you cannot perform the job that your were educated or trained to do.
True
What is occupational Disability?
Type of insurance that provides an income in case the insured becomes unable to perform the job he/she was educated or trained to do.
T/F Beware of short-term policies covering less than 5 years?
True
What percentage should your coverage be of your income?
65%
What is the elimination period?
The time between the disabling event and when the payments actually begin.
T/F A longer elimination period will lower your premium cost?
True
What is Long-Term Care Insurance?
Policy that covers the cost of nursing home or in-home care; recommended for everyone over age 60.
What percentage of people over the age of 65 will require long-term care at some point in their lives?
69%
T/F Don’t buy identity theft protection that only provides credit report monitoring?
True
What are Restoration Services?
Part of identity theft insurance that assigns a counselor to clean up the mess made when your identity was stolen.
Life insurance is to replace lost income due to what?
Death
T/F Most people have no idea what kind of life insurance they own?
True
What is Term Insurance?
Life insurance coverage for a specified period of time.
What is Cash Value Insurance?
Also known as whole life, universal life, variable life or permanent life insurance; premiums include a death benefit and a plan to build savings within the policy; significantly more expensive than term life insurance.
What is a Beneficiary?
The recipient of assets passed on from the death of a friend or relative.
What is the most common insurance myth?
The need for life insurance is a permanent situation.
Why not life insurance as an investment?
- returns are historically low 2. when you die with cash value, the insurance company keeps the cash value 3. the fees deducted from your return are extremely high
What is self-insured?
Condition of wealth at which time on no longer needs an outside insurance policy to cover a loss.
What is a level term?
you pay the same amount for the entire term of the policy.
T/F Stay away from fancy options?
True
Children only need enough insurance for what?
Burial expenses
