Exam 3 Flashcards
Renting is more advantageous than buying a home when you are seeking:
lower initial costs.
How does a seller’s market differ from a buyer’s market?
Seller’s market - demand for homes is high with few available for sale.
Buyer’s market - many homes are available for sale with relatively low demand.
How do changing interest rates affect the amount of mortgage a person can afford?
As interest rates decline, home buyers can afford to take on a larger mortgage
Under what conditions might an adjustable-rate mortgage be appropriate?
When interest rates are relatively high, and they are expected to decline.
What factors affect the selling price of a home?
location, size, condition, features, and current market demand
Insurance
Protection against possible financial loss
How are the most common risks classified?
personal risk, property risk, and liability risks
What is the difference between pure risk and speculative risk?
Pure risk-A risk in which there is only a chance of loss; also called insurable risk.
Speculative risk-A risk in which there is a chance of either loss or gain.
What are the methods of managing risk?
- risk avoidance
- risk reduction
- risk assumption
- risk shifting.
What main coverage is included in home insurance policies?
coverage for the building and other structures, additional living expenses, personal property, and personal liability
What type of coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for another person’s losses or injuries?
liability
How does renter’s insurance differ from other home insurance policies?
Renter’s insurance includes coverage for personal property, additional living expenses, and personal liability. It does not cover the building or other structures.
Financial responsibility law
State legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident
no-fault system
drivers involved in an accident collect medical expenses, lost wages, and related injury costs from their own insurance company
How does collision coverage differ from comprehensive physical damage coverage?
Collision - pays for damage to the insured’s car when it is involved in an accident
Comprehensive physical damage - covers financial loss from damage to a vehicle caused by a risk other than a collision, such as fire, theft, glass breakage, hail, or vandalism
A major expense associated with home ownership would be:
real estate taxes
During which phase of the home-buying process would you assess types of housing available?
Determine home ownership needs
A conventional mortgage usually has:
equal payments over 10, 15, 20, 25, or 30 years
Which of the following is an example of a closing cost?
Title insurance
While cleaning your home, a worker damages some furniture. You take action against the worker’s employer to cover the cost of the damage. This is an example of a(n)
vicarious liability
An umbrella policy is designed to cover:
major personal liability claims
Which type of coverage would pay for damage to your automobile in an accident for which you were at fault?
collision
Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry’s medical expenses would be covered by:
uninsured motorists protection
lease
legal document that defines the conditions of a rental agreement.
Condominium
individually owned housing unit in a building with several such units
Zoning laws
Restrictions on how the property in an area can be used
Mortgage
long-term loan on a specific piece of property such as a home or other real estate
Points
Prepaid interest charged by a lending institution for the mortgage
- each discount point is equal to 1 percent of the loan amount.
Amortization
reduction of a loan balance through payments made over a period of time
Adjustable-rate mortgage (ARM)
home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage.
Rate cap
limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage
Payment cap
limit on the payment increases for an adjustable-rate mortgage
Buy-down
interest rate subsidy from a home builder or a real estate developer that reduces a home buyer’s mortgage payments during the first few years of the loan.
Second mortgage
cash advance based on the paid-up value of a home; also called a home equity loan
Reverse mortgage
loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back with interest when the home is sold or the homeowner dies.
Refining
process of obtaining a new mortgage on a home to get a lower interest rate and payment.
Closing costs
Fees and charges paid when a real estate transaction is completed; also called settlement costs.
Title insurance
Insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy.
Deed
document that transfers ownership of property from one party to another
Appraisal
An estimate of the current value of a property.
Insurance company
risk-sharing firm that assumes financial responsibility for losses that may result from an insured risk
Insured
person covered by an insurance policy
Policyholder
person who owns an insurance policy
Risk
Chance or uncertainty of loss; also used to mean “the insured.”
Peril
chance of a possible loss
Hazard
factor that increases the likelihood of loss through some peril
Self-insurance
process of establishing a monetary fund to cover the cost of a loss
Negligence
Failure to take ordinary or reasonable care in a situation.
Household inventory
list or other documentation of personal belongings, with purchase dates and cost information.
Medical payments coverage (homeowner)
Home insurance that pays the cost of minor accidental injuries on one’s property.
Coinsurance clause
policy provision that requires a homeowner to pay for part of the losses if the property is not insured for the specified percentage of the replacement value.
Bodily injury liability
Coverage for the risk of financial loss due to legal expenses, medical costs, lost wages, and other expenses associated with injuries caused by an automobile accident for which the insured was responsible.
Property damage liability
Automobile insurance coverage that protects a person against financial loss when that person damages the property of others.
Deductible
amount a policyholder must pay per loss on an insurance policy
What is health insurance, and what is its purpose?
Health insurance is a form of protection with a primary purpose to alleviate the financial burdens suffered by individuals because of illness or injury.
The purpose of health insurance is to reduce the financial burden due to illness or injury.
Coinsurance
provision under which both the insured and the insurer share the covered losses
What benefits do Part A and Part B of Medicare provide?
hospital insurance (Part A) medical insurance (Part B).
What are the three main sources of disability income?
employers, Social Security, and workers’ compensation
How can you determine the amount of disability income insurance you need?
If the sum of your disability benefits approaches your after-tax income, you can safely assume that if disability strikes, you’ll be in good shape to pay your day-to-day bills while recuperating.
coordination of benefits (COB)
method of integrating the benefits payable under more than one health insurance plan
What do life expectancy tables indicate?
the average number of additional years a person of a certain age and sex can expect to live
What are the two types of life insurance companies?
stock life insurance companies, owned by shareholders
mutual life insurance companies, owned by policyholders.
What are Blue Cross and Blue Shield plans? What benefits does each plan provide?
Blue Cross-An independent membership corporation that provides protection against the cost of hospital care.
Blue Shield-An independent membership corporation that provides protection against the cost of surgical and medical care.
What are the two sources of government health insurance?
Medicare-Federal health insurance program for people 65 or older, people with certain disabilities. The program is administered by the Centers for Medicare and Medicaid Services.
Medicaid-A program of medical assistance to low-income individuals and families.
Why is it important to know the ratings of the insurance company?
- to determine the financial strength of the insurance company
- can also play a factor in finding more reasonably priced insurance.
Medigap, or MedSup, insurance
Supplements Medicare by filling the gap between Medicare payments and medical costs not covered by Medicare
disability income insurance
Provides payments to replace income when an insured person is unable to work
What makes a variable annuity different?
Variable annuities offer stepped-up death benefit, a guaranteed minimum income benefit, and sometimes long-term care insurance.
Which type of health insurance includes two features (a deductible provision and a coinsurance provision) to help keep the premium within the policyholder’s means?
Major medical expense
Which one of the following is true regarding group health insurance?
Provides coverage for you and your immediate family
Which health insurance plan directly employs or contracts with selected physicians to provide managed health care services in exchange for a fixed, prepaid monthly premium?
HMO
What are the main differences between whole life and term policies?
Whole life policy-An insurance plan in which the policyholder pays a specified premium each year for as long as he or she lives; also called a straight life policy, cash value life policy, or ordinary life policy.
Term insurance-Life insurance protection for a specified period of time; sometimes called temporary life insurance.
Your annual income is $45,000. What is your life insurance need based on the easy method?
$45,000 × 7 years × 70% =
$220,500
The total debts of you and your spouse include the following: mortgage, $200,000; auto loan, $16,000; credit card balance, $2,000; and personal debts of $4,000. Further, you estimate that your funeral will cost $6,000. Your spouse expects to continue to work after your death. What is your life insurance need using the DINK method?
$6,000 + ½ ($200,000 + $16,000 + $2,000 + $4,000) =
$117,000
rider
document attached to a policy that modifies its coverage
double indemnity
benefit under which the company pays twice the face value of the policy if the insured’s death results from an accident
How frequently does the premium for a whole life policy change during the insured’s life?
It never changes
Hospital expense insurance
Pays part or all of hospital bills for room, board, and other charges
Stop-loss
provision under which an insured pays a certain amount, after which the insurance company pays 100% of the remaining covered expenses
Long-term care insurance (LTC)
Pays for the cost of day-in, day-out care for long-term illness or disability
What are the four most common settlement options?
Lump-Sum Payment
.Limited Installment Payment
Life Income Option
Proceeds Left with the Company.
annuity
contract that provides a regular income, typically for as long as the person lives
Exclusive provider organization (EPO)
network that renders medical care from affiliated health care providers.
Point-of-service plan (POS)
network of selected contracted, participating providers; also called an HMO-PPO hybridor open-ended HMO
Nonparticipating policy
Life insurance that does not provide policy dividends; also called a nonpar policy.
Cash value
amount received after giving up a life insurance policy
beneficiary
person designated to receive something, such as life insurance proceeds, from the insured
Chartered life underwriter (CLU)
life insurance agent who has passed a series of college-level examinations on insurance and related subjects
Basic health insurance coverage
Combination of hospital expense insurance, surgical expense insurance, and physician expense insurance
Hospital indemnity policy
Pays stipulated daily, weekly, or monthly cash benefits during hospital confinement; not substitute for basic or major medical protection
Using the “nonworking” spouse method, what should be the life insurance needs for a family whose youngest child is 8 years old?
(18 − 8) × $10,000 = $100,000
