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SFL 260 > Exam 3 - Mortgages and Such > Flashcards

Exam 3 - Mortgages and Such Flashcards

1
Q

Marvin J. Ashton on Insurance

A

Have sufficient medical, auto, and homeowner’s insurance

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2
Q

N. Eldon Tanner on Insurance

A

Every family should make provision for proper health and life insurance

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3
Q

Six main types of insurance

A 
Life
Health
Auto
Home
Disability
Liability
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4
Q

Purpose of insurance

A

Transfer risk of losses or events from yourself to another institution

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5
Q

Without insurance…

A
  • Spouse may have to work
  • Unable to work, lose earning capacity
  • Children may not achieve important goals
  • lose everything you saved
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6
Q

Four ways to manage risk

A
  • Avoid it
  • Reduce it
  • Assume it
  • Transfer it
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7
Q

Should you insure against all losses?

A

NO.

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8
Q

Insure yourself against…

A

LOW frequency but HIGH severity of loss

  • HF, HS = Reduce
  • LF, HL = Transfer
  • HF, LL = Assume
  • LF, LL = Assume
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9
Q

Key to evaluating insurance

A

*Be careful in mixing insurance and investing products

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10
Q

Six Principles of Insurance

A

1) know yourself and your goals
2) know your budget and how much you can afford
3) understand costs/benefits - read prospectus and illustrations!
4) insure only against high-cost, high-several losses
5) work only with high-quality individuals and institutions
6) review insurance needs annually and make changes as necessary

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11
Q

5 kinds of insurance you don’t need

A

1) rental car collision
2) flight accident
3) travel insurance (EXCEPT international travel)
4) long-term care insurance (disability is better)
5) credit protection insurance

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12
Q

If insurance company goes bankrupt…

A

State insurance covers ~$100-300,000

*have serval policies w/ different companies

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13
Q

Auto insurance basic

A
  • EVERYONE needs liability insurance on car

- others who drive car are covered, if they have permission to drive

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14
Q

Liability Inusurance

A 
Includes:
-bodily injury 
-property damage
(100/300/50 = 
$100k bodily/person
$300k limit paid to all persons/accident
$50k property
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15
Q

Reduce auto insurance premiums!

A

-Decline collision and comprehensive on older vehicles

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16
Q

Lower auto insurance

A
  • Good credit!
  • Safe driving record!
  • get married! grow older!
  • live in small city or rural area!
  • high grades!
  • drive less!
  • insure multiple cars with same insurance company!
  • pay total insurance bill at once!
  • get a boring car!
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17
Q

Other auto insurance tips

A
  • purchase MAX liability coverage
  • purchase collision and comprehensive on NEWER vehicles
  • as book value goes down, raise deductible on collision and comprehensive (if you can absorb the loss)
  • drop collision, comprehensive on cars older than 8-10 years
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18
Q

Health Insurance effect on family

A
  • provides access to best care available
  • enables you to better budget healthcare costs
  • protects against financial catastrophe
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19
Q

Should you have health insurance?

A

YES. Or pay a penatly

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20
Q

Where to get insurnace

A

-Private
-Govt.
Medicaid (designed for poor)
Medicare (65+)

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21
Q

Max out-of-pocket cost

A

The most you could pay in a calendar year

insurance premiums + annual deductible + max copay

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22
Q

Annual Stop-Loss

A

sum of annual DEDUCTIBLE and MAX ANNUAL COPAY

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23
Q

Grace Period

A

period of time before insurance is cancelled if premium wasn’t paid

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24
Q

Formal name of Obamacare

A

Patient Protection and Affordable Care Act

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25
Q

Major Objectives of Obamacare

A
  • provide nearly universal healthcare in US
  • improve quality of healthcare: make preventative care less costly
  • reduce overall cost of healthcare by requiring nearly everyone to have health insurance
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26
Q

Popular Benefits of Obamacre

A
  • young adults can stay on parents’ insurance until 26
  • if anyone gets really sick, insurance co’s can’t terminate/limit amount of coverage
  • wellness and pregnancy exams = free
  • insurance co’s required to use at least 80% of premiums on providing actual medical services
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27
Q

How Obamacare extended care coverage

A
  • individual mandate
  • insurance exchanges
  • Medicaid expansion
  • employer mandate
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28
Q

Ten essential benefits insurance must cover

A

1) ambulatory services (outpatient care)
2) emergency services
3) hospitalization (ex: surgery)
4) maternity and newborn care
5) mental health, substance abuse care
6) prescription drugs
7) rehab and habilitative services and devices
8) lab services
9) preventative and wellness services, chronic disease mgmt.
10) pediatric services

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29
Q

How to not pay penalty of no insurance

A
  • uninsured for 8% of household income
  • don’t file tax return b/c income too low
  • member of a tribe
  • member of healthcare sharing ministry
  • member of religious sect against insurance
  • incarcerated
  • not present in the U.S.
30
Q

Great info on Obamacre

A

Kaiser Family Foundation Health Reform website

31
Q

Life Insurance

A
  • provides compensation to beneficiaries should you die prematurely
  • if you have dependents, you need life insurance
32
Q

Should you have life insurance?

A

YES.

  • 30% households don’t have it…
  • 50% don’t have enough…
33
Q

Life Insurance Terms:

Beneficiaries

A

recipient of benefits

34
Q

Life Insurance Terms:

Face Value

A

basic benefit that is to be paid to beneficiary

35
Q

Life Insurance Terms:

Insured

A

person whose life is covered

36
Q

Life Insurance Terms:

Policy Owner

A

person/business who pays for insurance, owns policy

37
Q

Life Insurance Terms:

Premium

A

payment for insurance policy

38
Q

Life Insurance Terms:

Grace Period

A

after non-payment, amount of time before policy is cancelled

39
Q

Life Insurance Terms:

Cash Value

A

total account value available to policy owner while he/she is alive (whole life insurance)

40
Q

Life Insurance Terms:

Non-forfeiture Clause

A

allows you to use cash value of whole life policy if you cancel

41
Q

Life Insurance Terms:

Settlement Options

A

options for receiving benefits

42
Q

Four questions - life insurance

A

1) do I need it?
2) how much should i purchase?
3) what kind?
4) how should the benefits be received?

43
Q

Four methods of deciding how much life insurance to get

A

1) Multiple of Income
2) Desired Income (+ after-tax rate)
3) Human Life Value (+ real rate of interest)
4) Needs Analysis

44
Q

Two types of Life Insurance

A

1) Term
- premiums cover death benefit only
- no cash value
- much less expensive
2) Whole life
- premiums cover death benefit + investment plan w/ modest but guaranteed returns
- cash value
- eventually can get “paid up” (no premiums)
- much more expensive

45
Q

Term Life Insurance pros/cons

A 
PROS
-inexpensive
-easy to understand
-low commissions
-can convert to permanent policy later
CONS
-premiums increase as insured ages
-no cash value
-cannot be purchased after 65
46
Q

Whole Life Insurance pros/cons

A 
PROS
-builds cash value
-premiums stay level
-some policies can pay their own premiums w/ internally generated dividends
-tax-deferred growth of cash value
CONS
-very expensive
-high commissions
-low rate of return compared to stock market
-complex
-illustrations can be misleading
47
Q

Six determinants of term life insurance

A
  • length of term
  • age
  • face value of policy
  • gender
  • health factors
  • family history
48
Q

How can life insurance benefits be received?

A

1) lump sum
- chosen 90% of the time
- not taxable to beneficiaries as income (but added to insured’s estate and can be taxed)
- interest income produced by death benefit is taxable
2) interest payment
- invested and paid over period of time
3) installment (annuity)
- receive $ over period of time
4) life annuity
- guaranteed to receive annuity payment as long as you live

49
Q

President Hinckley on home ownership

A

Be modest in expenditures, avoid debt, pay off debt as quickly as possible

50
Q

When buying a home, REMEMBER:

A

Include tithing as a debt!

51
Q

Ad/Dis of Renting

A 
AD
-mobility
-no maintenance costs
-low financial commitment
-easy to budget
DIS
-cannot make changes
-lack of control in cost
-no interest deductions
-no potential property appreciation
52
Q

Suggestions for potential renters…

A
  • negotiate best rental price (rentometer.com!)
  • read the lease and modify
  • if want to renew lease, contact landlord 2 months before
  • know your rights
53
Q

Ad/Dis of buying a home

A 
AD
-pride of ownership
-fixed monthly payment
-interest payments = tax deductible
-potential property appreciation
-potential to borrow against equity
DIS
-time-consuming & \$\$$ to sell
-significant upfront costs
-maintenance
-value could decrease
54
Q

Ad/Dis of building

A 
AD
-same of buying +:
-build what you want
-new stuff = less maintenance at start
-pick location
-may be cheaper
DIS
-lots of extra work
-labor, landscaping cost
-building loans, rentals cost
-high stress
55
Q

Ad/Dis of renovating

A

AD
-faster than building
-may be less expensive, especially if you do the work
-necessary if no lots available
DIS
-may be more expensive (rule of thumb, DOUBLE estimate)
-high stress

56
Q

PITI

A 
P = payment on principle loan
I = payment of interest on loan
T = property taxes
I = homeowners insurance
57
Q

8 things to do before you start looking to buy a home

A

1) know your budget
2) know your credit score
3) calculate front and back-end bank ratios
4) calculate your bank ratios for LDS
5) choose your preferred loan type and term
6) know what you need for a down payment and upfront cost
7) have two years of copies of taxes
8) get pre-approved

58
Q

Acceptable front and back-end affordability ratios

A

FRONT
-PITI / monthly gross income < 28%
BACK
-PITI + other long-term debt / monthly gross income < 36%
(LDS - reduce monthly gross income by 10%)

59
Q

Three Common Types of Mortgage

A

1) fixed rate, 30 years
- constant rate for life of loan
- home = collateral
- low payments
2) fixed rate, 15 years
- same as above +
- loan paid off in 1/2 time
- huge interest savings
- higher payments
3) adjustable rate mortgage
- change based on economy
- interest rate caps
- -lender lowers/raises IR once/year
- -no inc/dec of more than 2%/year and 6% over life of loan
- -lowest initial monthly payments (risk on back-end)

60
Q

Deciding between 15 and 30 year mortgage

A
  • budget tight or flexible?
  • marginal tax rate?
  • what will you do with extra $ from lower payments (30 yr)
61
Q

Closing costs

A
  • down-payment = 3-20%
  • points
  • -when IR high, used to buy down IR (1 point = 1%)
  • other costs (2-5% cost of home)
62
Q

Four purchase alternatives to a traditional home

A

1) condos
- monthly maintenance fees
2) cooperatives
- all units owned collectively
3) mobile homes
- low cost, but must rent PAD
4) duplex
- less $, but less privacy

63
Q

What if you cannot meet all the mortgage requirements?

A
  • get part/all of down payment as a gift
  • try seller financing
  • use money from your IRA ($10k withdrawal allowed without paying penalty, but pay income tax)
64
Q

Tips to find the right home

A
  • GO SLOW
  • must-haves vs. nice-to-haves
  • get a good realtor and make them earn their commission
  • do your own research
65
Q

Mortgage refinancing

A

Refinance to lower IR

  • check prepayment penalties
  • compare savings w/ fees
  • good idea if you can lower IR by 2%+
66
Q

PMI

A

private mortgage insurance

  • need if loan > 80% of appraise value
  • insures lender against loss down to 80%
  • can drop after 2 years IF:
  • -home equity risen 20% more
  • -home equity 25%+ of market appraisal
67
Q

Insurance often overlooked by BYU students

A

RENTERS

68
Q

Three types of coverage for homeowner’s insurance

A

1) structure
2) contents
3) liability

69
Q

Personal property insurance info

A

should have 50-70% of value of home in personal property insurance

  • limitations
  • -limit on jewelry, computer stuff
70
Q

Homeowner’s insurance tips

A
  • get enough to completely rebuild house
  • personal property should cover replacement cost NOT actual cash value
  • get personal property if you rent for the renters
71
Q

Cost of disability insurance

A

~1-3%

72
Q

Disability insurance provisions

A
  • elimination (waiting) period
  • benefit period
  • residual clause
  • social security rider
  • cost of living adjustment
  • non-cancellable
  • definition of disability
  • limit of liability

SFL 260 (3 decks)

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