Finance Final Exam Flashcards
Chapters 14-24
1
Q
An _____ is a periodic payment that continues for a fixed period or for the duration of a designated life or lives.
A
annuity
2
Q
______ creates an immediate estate and provides protection against dying too soon before sufficient financial assets can be accumulated
A
Life Insurance
3
Q
An _____ provides protection against living too long (often called excessive longevity) and exhausting your savings while you are still alive.
A
Annuity
4
Q
The fundamental purpose of an ______ is to provide a lifetime income that cannot be outlived. It protects against the loss of income due to excessive longevity and the exhaustion of savings.
A
Annuity
5
Q
A _____ annuity pays periodic income payments that are guaranteed and fixed in amount; the first payment is due one payment interval from the date of purchase.
A
Fixed Immediate Annuity
6
Q
Identify the annuity settlement options that are typically found in a fixed annuity.
A
- Cash or guaranteed installment option
- Life annuity (no refund)
- Life annuity with period certain
- Installment refund option
- Inflation annuity option
7
Q
An ________ annuity is a fixed, deferred annuity that allows the annuity owner to participate in the growth of the stock market and also provides downside protection against the loss of principal and prior interest earnings if the annuity is held to term.
A
equity-indexed annuity
8
Q
There is always the risk that you will run out of money at an advanced age and still be alive. To deal with the risk of exhausting your financial assets at an advanced age, some insurers have designed ______ products. ______ are low-cost annuities because there are no cash values or death benefits in the policy.
A
Longevity Annuity
9
Q
Explain the eligibility requirements for a traditional IRA.
A
- the participant must have tax-able compensation during the year.
- the participant must be under age 70 1/2
10
Q
What are the annual contribution limits to an IRA?
A
For 2015, the maximum annual contribution is $5,500 or 100 percent of taxable compensation, whichever is less.
Older workers age 50 and over can contribute an additional $1,000, or a maximum of $6,500.
11
Q
A _______ is an IRA that allows workers to take a tax deduction for part or all of their IRA contributions. The investment income accumulates income-tax free on a tax-deferred basis, and the distributions are taxed as ordinary income.
A
Traditional IRA
12
Q
Although annual contributions to a ______ are not tax deductible, the investment income accumulates income-tax free, and qualified distributions are not taxed if certain requirements are met.
A
Roth IRA
13
Q
What is an IRA rollover?
A
A rollover is a tax-free distribution of cash or other property from one retirement plan, which is then deposited into another retirement plan.
14
Q
What are the age limits on Traditional IRA vs Roth IRA?
A
Traditional: Under age 70 1/2
Roth: No Age Limit
15
Q
What are the contribution limits on Traditional & Roth IRAs?
A
$5,500 (6,500 age 50 and older) for both Traditional and IRA
16
Q
How are the tax on distributions done for Traditional and Roth IRAs?
A
Traditional: Taxed as ordinary income, no tax on nondeductible contributions
Roth: Distributions are tax-free if you meet certain conditions
17
Q
The person who receives the payments is the _____
A
Annuitant
18
Q
Annuity payments consist of what three sources?
A
- Premium payments
- Interest earnings
- Unliquidated principal of annuitants who die early
19
Q
_____ use special mortality tables to calculate annuity premiums because annuitants tend to be healthy individuals
A
Actuaries
20
Q
A ______ annuity is an annuity purchased with a lump sum
A
single-premium immediate annuity
21
Q
During the ______ prior to retirement, premiums are credited with interest
A
accumulation period
22
Q
The _______ is the minimum interest rate that will be credited to the fixed annuity
A
guaranteed rate
23
Q
The _____ is based on current market conditions, and is guaranteed only for a limited period
A
current rate
24
Q
A _______ pays a higher interest rate initially
A
bonus annuity
25
The______ is the period in which funds are paid out, or annuitized
liquidation period
26
A _______ pays periodic income payments at some future date
deferred annuity
27
A ______ is purchased with a lump sum, but income is deferred until some future date
single-premium deferred annuity
28
A_______ allows the owner to vary the premium payments
flexible-premium annuity
29
A________ begins paying benefits only at an advanced age, such as age 85
longevity annuity
30
Under a_______, the income payments terminate when the death of the first covered person dies
joint annuity
31
A _______ pays benefits based on the lives of two or more annuitants
-The annuity income is paid until the last annuitant dies
joint-and-survivor annuity
32
- A ______ option provides a life income to the annuitant only while the annuitant remains alive
- A _______pays a life income to the annuitant with a certain number of guaranteed payments
- life annuity (no refund) option
| - life annuity with guaranteed payments
33
An _____ pays a life income to the annuitant; after the annuitant’s death, payments continue to a beneficiary until they equal the purchase price
installment refund option
34
A ______ pays the beneficiary a lump sum
cash refund option
35
An ______ option provides periodic payments that are adjusted for inflation
inflation-indexed annuity option
36
Some insurers now make available riders that allow annuitants to make a _______
partial cash withdrawal
37
A ______ pays a lifetime income, but the income payments vary depending on common stock prices
variable annuity
38
What is the purpose of a variable annuity?
- The purpose is to provide an inflation hedge by maintaining the real purchasing power of the payments
- Premiums are used to purchase accumulation units during the period prior to retirement
- At retirement, the accumulation units are converted into annuity units
39
Variable annuities contain the following fees and expenses:
- Investment management charge
- Administrative charge
- Mortality and expense risk charge
- Surrender charge
40
The ______is the percent of increase in the stock index that is credited to the contract
participation rate
41
Advantages to longevity annuities include:
-Benefits kick in when other financial assets are likely to be exhausted
-They are generally less expensive than traditional -immediate annuities
They can be purchased with an inflation hedge
42
Disadvantages of longevity annuities include:
- Your heirs will lose money if you die during the deferral period
- Once purchased, your funds are locked up
43
An individual annuity purchased from a commercial insurer is a _____
non-qualified annuity
44
Characteristics of non-qualified annuity:
- It does not meet IRS code requirements
- It does not qualify for most income tax benefits
- Premiums are not income-tax deductible
- Investment income is tax deferred
- The net cost of annuity payments is recovered income-tax free over the payment period, but the amount that exceeds the net cost is taxable as ordinary income
45
An exclusion ratio is used to determine the taxable and nontaxable portions of the payment. What is the exclusive ratio?
Exclusive Ratio = investment in the contract / expected return
46
The I R A can be set up as either:
- An individual retirement account
| - An individual retirement annuity
47
Describe briefly the major healthcare problems in the United States
- rising healthcare expenditures
- large number of uninsured in the population
- considerable waste and inefficiency
- harmful insurer practices
48
A _______is a tax-exempt or custodial account established exclusively for the purpose of paying qualifying medical expenses of the account beneficiary who is covered under a high-deductible health insurance plan.
health savings account
49
There are two components of a HSA:
- a high-deductible health insurance policy that covers catastrophic medical bills and
- an investment account from which the account holder can withdraw money tax-free for medical costs.
50
_____(also called reimbursement policies) are the most common. These policies pay a daily or monthly benefit limit for covered expenses incurred for long-term care up to the policy limits.
Expense-incurred policies
51
_____ (also called per diem policies): pay a flat dollar amount per day regardless of your actual long-term expense.
Indemnity policies
52
_____ (also called hybrid policies): Some include coverage for certain long-term care expenses
Life insurance and deferred annuity policies
53
Triggers to become eligible for benefits of long term care insurance
1. requires the insured to be unable to perform a certain number of activities of daily living
2. insured needs substantial supervision to be protected against threats to health and safety because of severe cognitive impairment
3. medical necessity trigger: benefits can be paid if a physician certifies that long-term care is needed even if the insured does not meet any of the triggers described
54
Explain the various definitions of disability that are found in disability-income insurance.
- Inability to perform the material and substantial duties of your regular occupation
- Inability to perform the material and substantial duties of your occupation, and are not engaged in any other occupation
- Inability to perform the duties of any occupation for which you are reasonably fitted by education, training, and experience
- Inability to perform the duties of any gainful occupation
- Loss-of-income test
55
____means that you are gainfully employed and not totally disabled but, solely because of sickness or injury, your loss of income is at least 15 percent of your prior income.
Residual Disability
56
The ____ is the length of time that disability benefits are payable after the elimination period is met. The insured has a choice of benefit periods, such as 2, 5, or 10 years, or up to age 65 or 70.
benefit period
57
Individual policies normally contain an _____, during which time benefits are not paid. Insurers offer a range of elimination periods, such as 30, 60, 90, 180, or 360 days.
elimination period (waiting period)
58
If the insured is totally disabled for 90 days, future premiums will be _______as long as the insured remains disabled.
waived
59
Explain the meaning of a preexisting condition:
a physical or mental condition that existed during some specified time period prior to the effective date of the policy.
60
Reasons for the increase in spending include:
- Advances in technology
- Cost insulation because of third-party payers
- Employer-sponsored health insurance
- Fee-for-service defects
- High administrative costs
- Lack of transparency in cost and quality information
- Cost shifting by Medicare and Medicaid
- Rising prices in the healthcare sector
- Defensive medicine
61
_____ protects an individual or family for covered medical expenses because of sickness or injury
Individual medical expense insurance
62
A ______states a percentage of the bill in excess of the deductible, which the insured must pay out-of-pocket up to some maximum annual dollar limit
coinsurance provision
63
A______ is a flat amount the insured must pay for certain benefits, such as an office visit or generic drug
co-payment
64
The insured’s total out-of-pocket spending is limited by an ____, after which the insurer pays 100 percent of eligible expenses
annual out-of-pocket limit (also called a stop-loss limit)
65
A ______provides covered medical services to the members in a cost effective manner, with heavy emphasis on cost control
managed care plan
66
The most popular plan today is a ______.
This contracts with physicians, hospitals, and other health-care providers to provide covered medical services to policyholders at discounted fees
preferred provider organization (PPO)
67
____policies are the most common type of LTC insurance policies
Expense-incurred (or reimbursement)
68
Some states have _____designed to reduce Medicaid expenditures by eliminating or reducing incentives of some people to rely on Medicaid to pay for long-term care
long-term care partnership programs
69
Explain the typical eligibility requirements that employees must meet in group insurance plans.
- Be a full time employee
- Satisfy a probationary period (if any)
- Apply for insurance during the eligibility period
- Be actively at work when insurance becomes effective
70
____are nonprofit organizations that receive favorable tax treatment and are regulated under special legislation. To raise capital and become more competitive many of these plans have converted to for-profit status, with stock-holders and a board of directors.
Blue Cross and Blue Shield plans
71
Under the _____ self-insured plans generally are not subject to state regulation. Thus, a national employer does not have to comply with laws in 51 jurisdictions.
Employee Retirement Income Security Act of 1974 (ERISA),
72
_____ are exempt from state laws that require insured plans to offer certain state-mandated benefits
Employer Self-insured plans
73
_____ is an organized system of healthcare that provides comprehensive medical services to its members on a prepaid basis.
Health Maintenance Organizations (HMOs)
74
_____ is a plan that contracts with healthcare providers to provide certain medical services to the plan members at discounted fees.
Preferred Provider Organizations (PPOs)
75
_____ plan is a managed care plan that combines the basic characteristics of an HMO and a PPO, but members have the option to select care outside the network. If patients receive care from network providers, they pay substantially lower out of pocket expenses
Point-of-Service Plans (PoS)
76
Identify the major provisions of the Affordable Care Act that affect individuals, families, and employers.
- Certain Insurance Acts are prohibited
- Employer-shared responsibility (50 or more employees they must offer health insurance)
- Small employer tax credits
- SHOP Marketplace program for small business firms
- Required minimum medical loss ratio
- Grandfathered plans
- Flexible spending account limits
- out of network claim payments for emergency room visits
- Uniform coverage documents
- Cadillac tax on high-value policies
- Employer w-2 reporting obligations
77
_____ allow employees to select those employee benefits that best meet their specific needs. Instead of a single benefits package that applies to all employees, they allow employees to select among various group life, medical expense, disability, dental and other plans that are offered.
Cafeteria plans
78
_____are employer-sponsored benefits, other than wages, that enhance the economic security of individuals and families and are partly or fully paid for by employers
Employee benefits
79
- Group life, medical and dental insurance
- Group short-term and long-term disability plans
- Paid holidays, vacations, family and medical leave
- Educational assistance, employee discounts
Employee Benefits Examples
80
Group insurers observe certain principles:
- The group should not be formed for the sole purpose of obtaining insurance
- There should be a flow of persons through the group
- Benefits should be automatically determined by a formula
- A minimum percentage of eligible employees must participate
- The plan should be easy to administer
81
Some Group life insurance plans have a _______ that allows the coverage to continue if the employee leaves
portable term insurance option
82
_____is an employee benefit that pays the cost of hospital care, physicians’ and surgeons’ fees, and related medical expenses
Group medical expense insurance
83
There are several types of HMOs:
- Staff Model
- Group Model
- Network Model
- Individual Practice Association (IPA)
84
Type of HMO: physicians are employees of the HMO and are paid a salary or a salary and an incentive bonus to hold down costs
staff model
85
Type of HMO: physicians are employees of another group that has a contract with the HMO
group model
86
Type of HMO: the HMO contracts with two or more independent group practices
network model
87
Type of HMO: is an open panel of physicians who work out of their own offices and treat H M O members at reduced fees, on a fee-for-service basis
An individual practice association (IPA)
88
The Affordable Care Act prohibits certain practices:
-Applicants cannot be turned down or rated up regardless of their health condition
-Prohibition on preexisting conditions
-Prohibition on lifetime and annual limits
-Insurers may not retroactively rescind a policy because of unintentional errors on the application
-Retention of coverage until age 26
-No cost sharing for certain preventive services
-An employer mandate requires large firms to offer health insurance or pay penalties
-Health insurance plans must provide essential health benefits
-Small employer tax credits
-The SHOP Marketplace program enables small firms to offer high-quality health and dental coverage
-Required minimum loss ratio
-Grandfathered plans
Flexible spending account limits
-Out-of-network claim payments for emergency room visits
-Uniform coverage documents
-Cadillac tax on high-value policies
-Employer W-2 reporting obligations
89
A_____ is a generic term for a plan that combines a high-deductible health plan with a health savings account (H S A) or health reimbursement arrangement (H R A)
consumer-directed health plan
90
A _____ provision specifies the order of payment when an insured is covered under two or more group health insurance plans
coordination-of-benefits provision
91
The ______ gives employees the right to remain in the employer’s plan for a limited period after leaving employment
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
92
The ___placed restrictions on the rights of insurers to limit coverage for preexisting conditions
Health Insurance Portability and Accountability Act (1996)
93
The ______ changed the preexisting conditions under HIPAA:
| Insurers are prohibited from denying or limiting coverage for preexisting conditions
Affordable Care Act
94
A ___ provision makes monthly payments to an eligible surviving spouse or children for a limited period following the disabled worker’s death
survivor income benefits provision
95
A ____allows employees to make their premium contributions for plan benefits with before-tax dollars
premium conversion plan
96
What are the federal income-tax advantages to employers in a qualified retirement plan?
Employer contributions are income-tax deductible up to certain limits as an ordinary business expense. Employers can also deduct plan expenses if paid directly.
97
What are the federal income-tax advantages to employees in a qualified retirement plan?
- Employer contributions are not considered taxable income to the employees and are not taxed until the employee retires or receives the funds.
- Investment earnings on plan assets accumulate on a tax-deferred basis and are not currently tax-able to plan participants. Distributions from the plan can be rolled over on a tax-deferred basis to another qualified retirement plan or individual retirement account (IRA). IRA distributions, however, must start at age 701⁄2.
- If set up properly, employees can voluntarily reduce their salaries and make a contribution to a qualified plan with before-tax dollars, which reduces taxable wages. The savings in taxes over the years are sizeable
98
A ______ is a qualified cash or deferred arrangement (CODA) that allows eligible employees the option of receiving funds as taxable compensation or putting funds into the plan on a tax-deferred basis.
Section 401(k) plan
99
_____, you make contributions with after-tax dollars, and qualified distributions at retirement are received income-tax free
Roth 401(k) plan
100
_____ plans are retirement plans designed for employees of public educational systems and tax-exempt organizations, such as hospitals, nonprofit groups, and churches.
Section 403(b)
101
Such plans are limited to employers that employ 100 or fewer eligible employees and do not maintain another qualified plan. Under a _____ plan, smaller employers are exempt from most nondiscrimination and administrative rules that apply to qualified plans
Savings Incentive Match Plan for Employees (SIMPLE)
102
Identify the major problems that are currently present in tax-deferred retirement plans.
- Inadequate 401k and IRA account balances
- Incomplete coverage of the labor force
- Lower benefits for women
- Limited protection against inflation
- Leakages from 401k plans and IRA plans
- Investment mistakes that jeopardize economic security
103
Early distribution tax penalty for retirement plans.
A 10 percent penalty tax applies to funds withdrawn from a qualified plan before age 59 1⁄2. The 10 percent penalty tax applies to the amount included in gross income. However, there are exceptions to this rule.
104
_____ refers to the employee’s right to the employer’s contributions or benefits attributable to the contributions if employment terminates prior to retirement
Vesting
105
In a ______, the retirement benefit is known, but the contributions will vary depending on the amount needed to fund the desired benefit
defined-benefit plan
106
Retirement benefits in defined-benefit plans are based on _____
formulas
- unit benefit formula
- flat percentage
- flat amount
107
___is a federal corporation that guarantees the payment of vested benefits to certain limits if a private pension plan is terminated
The Pension Benefit Guaranty Corporation (PBGC)
108
A _____ is a defined-benefit plan in which the benefits are defined in terms of a hypothetical account balance
cash-balance plan
109
In a ____, the contribution rate is fixed but the actual retirement benefit is variable
defined-contribution plan
110
_______ is an arrangement in which each participant has an individual account, and the employer’s contribution is a fixed percentage of the participant’s compensation
money purchase plan
111
A_____ is a defined-contribution plan in which the employer’s contributions are typically based on the firm’s profits
profit-sharing plan
112
Retirement plans for the self-employed were formerly called ____
Keogh plans
113
A ______ is a retirement plan in which the employer contributes to an IRA established for each eligible employee
- Start-up costs are low
- A plan must cover all workers who are at least age 21, have worked for at least 3 of the past 5 years, and have received at least $600 in compensation
- The employer must contributed equally for all eligible employees; employees cannot contribute
- There is full and immediate vesting of all employer contributions under the plan
simplified employee pension (SEP)
114
A _____is designed to encourage low- to moderate-income earners to save for retirement
Saver’s Credit tax credit
115
A_____ is a financial institution that provides for the accumulation or administration of the funds that will be used to pay pension benefits
funding agency
116
A ______ is administered by a commercial bank or individual trustee
An _____ is administered by a life insurer
A_____ is administered by both
- trust-fund plan
- insured plan
- split-funded plan
117
A ______ is a trust agreement or insurance contract that states the terms under which the funding agency will accumulate, administer, and disburse the pension funds
funding instrument
118
A ______ is an arrangement in which the insurer guarantees the interest rate for a number of years on a lump-sum deposit
guaranteed investment contract (GIC)
119
Several serious problems exist among current tax-deferred retirement plans:
-Inadequate 401(k) account balances
-Incomplete coverage of the labor force
-Lower benefits for women
-Limited protection against inflation
-Workers spending lump-sum pension distributions
Investment mistakes by participants that jeopardize economic security
120
Explain the reasons for social insurance programs in the United States.
- Social insurance programs are enacted to solve complex social problems.
- Social insurance programs are necessary because certain risks are difficult to insure privately.
- Social insurance programs provide a base of economic security to the population.
121
Describe the basic characteristics of social insurance programs.
- Compulsory programs
- Floor of income
- Emphasis on social adequacy rather than individual equity
- Benefits loosely related to earnings
- Benefits prescribed by law
- No means test
- Full funding unnecessary
- Financially self-supporting
122
The OASDI program has several types of insured status. Define Fully Insured
Retirement benefits require a fully insured status. You are fully insured for retirement benefits if you have 40 credits.
123
The OASDI program has several types of insured status. Define Currently Insured
You are currently insured if you have earned at least 6 credits during the last 13 calendar quarters ending with the quarter of death, disability, or entitlement to retirement benefits.
124
The OASDI program has several types of insured status. Define Disability Insured.
Disability insured - You must meet two work tests to be disability insured: (1) a recent work test and (2) a duration of work test.
125
Commonly known as ____ is the most important social insurance program in the United States
Social Security, OASDI
126
Explain Medicare Part A
Hospital Insurance - provides coverage for inpatient hospital stays and other services
127
Explain Medicare Part B
Medical Insurance - is a voluntary program that covers physicians’ fees and related medical services
128
_______ is financed by a payroll tax paid by covered employees, employers, and the self-employed
Payroll tax is 1.45 percent on all covered earnings
The program is subsidized by a small amount of general revenues
________is financed by monthly premiums and the general revenues of the federal government
- Medicare hospital insurance (Part A)
| - Medical insurance (Part B)
129
______are private health plans that are part of the Medicare program
- Medicare pays a set monthly amount to the plan
- Most plans provide extra benefits and have lower co-payments than the original Medicare plan
- Most plans include Medicare prescription drug coverage
Medicare Part C [Medicare Advantage Plans]
130
- Beneficiaries in the original Medicare plan can add prescription drug coverage by joining a stand-alone plan
- Monthly premiums depend on the plan chosen, and vary in the cost and types of drugs covered
- Beneficiaries pay part of the cost of prescription drugs, and Medicare pays part of the cost
- Plans must provide at least standard coverage
Medicare Prescription Drug Coverage (Part D)
131
Medicare beneficiaries can purchase a ______ policy to cover part or all of medical expenses not paid by Medicare
- The policies are sold by private insurers, and are strictly regulated by federal law
- There are 10 standard policies (A-N) which offer different sets of benefits; some policies are not longer available
Medigap
132
______programs are federal-state programs that pay weekly cash benefits to workers who are involuntarily unemployed
Unemployment Insurance
- The maximum duration of regular benefits is limited to 26 weeks in most states
- Under the extended-benefits program, an additional 13 weeks of benefits is paid during periods of high unemployment
133
______provide additional weeks of benefits to eligible claimants who have exhausted their regular state benefits during recessions
Emergency unemployment compensation programs
134
_____is a social insurance program that provides medical care, cash benefits, and rehabilitation services to workers who are injured or sick from job-related accidents or disease
Workers Compensation
135
Under the common law of industrial accidents (1837), workers injured on the job had to sue their employers and prove negligence before they could collect damages
- Under the ____, injured workers could not collect damages if they contributed in any way to the injury
- Under the _____, the injured worker could not collect damages if the injury resulted from the negligence of a fellow worker
- Under the _____, the injured worker could not collect if he or she had advanced knowledge of the dangers of the occupation
- contributory negligence doctrine
- fellow-servant doctrine
- assumption-of-risk doctrine
Most states passed workers compensation laws by 1920
Coverage is based on the fundamental principle of liability without fault
Employees do not have to sue their employers
136
Objectives of state workers compensation laws include:
- Provide broad coverage of employees for job-related accidents and disease
- Provide substantial protection against the loss of income
- Provide sufficient medical care and rehabilitation services
- Encourage firms to reduce job-related accidents and develop effective safety programs
- Reduce litigation
137
Two eligibility requirements must be met to receive benefits of Workers Compensation:
- The disabled person must work in a covered occupation
| - The injury or disease must arise out of and in the course of employment
138
_____ typically is defined as the failure to exercise the standard of care required by law to protect others from an unreasonable risk of harm.
Negligence
139
Explain the four elements of negligence.
- Existence of a legal duty
- Failure to perform that duty
- Damage or injury to the claimant
- Proximate cause relationship between the negligent act and the infliction of damage
140
_____Also referred to as absolute liability, means that liability is imposed regardless of negligence or fault.
Strict Liability
141
_____Are awards that compensate injured victims for the losses actually incurred. This includes both special and general damages.
Compensatory Damages
142
_______ are awards for losses that can be determined and documented, such as medical expenses.
Special damages
143
______ are awards for losses that cannot be specifically measured or itemized, such as compensation for pain and suffering.
General damages
144
_____Are awards designed to punish people and organizations for egregious acts so that others are deterred from committing the same wrongful act.
Punitive Damages
145
______ is a technique by which parties in a dispute agree to be bound by the decision of an independent third party.
Arbitration
146
______ is a violation of a person’s legal rights, or a failure to perform a legal duty owed to a certain person or to society as a whole
A legal wrong
147
____ is a legal wrong for which the court allows a remedy in the form of money damages
A tort
148
The person who is injured _____ by the action of another ______ can sue for damages
- plantiff
| - tortfeasor
149
Torts fall into three categories:
- Intentional, e.g., fraud, assault
- Strict liability means that liability is imposed regardless of negligence or fault
- Negligence
150
What are the Elements of Negligence
-Existence of a legal duty to use reasonable care
-Failure to perform that duty
Damage or injury to the claimant
-A proximate cause relationship between the negligent act and the infliction of damages, which requires an unbroken chain of events
151
Under a comparative negligence law, the financial burden of the injury is shared by both parties according to their respective degrees of fault
Under the_____, you can collect damages even if you are negligent, but your reward is reduced in proportion to your fault
Under the _____, you cannot recover if you are 50 percent or more at fault
Under the _____, you cannot recover if you are 51 percent or more at fault
- pure rule
- 50 percent rule
- 51 percent rule
152
The ______states that a plaintiff who is endangered by his or her own negligence can still recover damages from the defendant if the defendant has a last clear chance to avoid the accident but fails to do so
last clear chance rule
153
Under the_____, a person who understands and recognizes the danger inherent in a particular activity cannot recover damages in the event of an injury
assumption of risk doctrine
154
Under certain conditions, the negligence of one person can be attributed to another:
- Under a ______ a motorist’s negligence is imputed to the vehicle’s owner
- Under the ______, the owner of an auto can be held liable for negligent acts committed by family members
- Negligence may arise out of a joint business venture
- Under a _____, a business that sells liquor can be held liable for damages that may result from the sale of liquor
- vicarious liability law,
- family purpose doctrine
- dram shop law
155
Under this doctrine, the very fact that the injury or damage occurs establishes a presumption of negligence
res ipsa Loquitur "The Thing Speaks for Itself"
156
Three requirements must be met for res ipsa loquitur to apply:
- The event is one that normally does not occur in the absence of negligence
- The defendant has exclusive control over the instrumentality causing the accident
- The injured party has not contributed to the accident in any way
157
A ______ is a person who enters or remains on the owner’s property without the owner’s consent
-The duty to refrain from injuring a them is sometimes referred to as the _____
- trespasser
| - duty of slight care
158
_____ is a person who enters the premises with the occupant’s expressed or implied permission
-The property owner must warn the them of unsafe conditions which are apparent
licensee
159
An_____is a person who is invited onto the premises for the benefit of the occupant
-The occupant has an obligation to inspect the premises and eliminate any dangerous conditions
invitee
160
An _____ is a hazardous condition that can attract and injure children
attractive nuisance
161
Under the _____, an employer can be held liable for the negligent acts of employees while they are acting on the employer’s behalf
doctrine of respondeat superior
162
_____ refers to the risk that an unauthorized party gains access to an organization’s data
Cyberliability
163
This is the most important part of the Personal Auto Policy (PAP),_____ coverage protects a covered person against a lawsuit or claim arising out of the ownership or operation of a covered vehicle.
Part A: Liability Coverage
164
This is frequently included in the PAP. Medical payments are paid without regard to fault. Two groups are insured, the named insured and family members and other persons while occupying a covered auto
Part B: Medical Payments Coverage
165
This pays for bodily injury (and property damage in some states) caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent.
Part C: Uninsured Motorists Coverage
166
This type of coverage provides coverage for damage or theft of an auto
Part D: Coverage for Damage to Your Auto
167
Also covered by the PAP: A _____, which is a nonowned auto or trailer used temporarily because of mechanical breakdown, repair, servicing, loss, or destruction of a covered vehicle
temporary substitute vehicle
168
Liability Coverage: The coverage is usually written in ______, where the amounts of insurance for bodily injury liability and property damage liability are stated separately
split limits
169
______covers all reasonable medical and funeral expenses incurred by an insured in an accident.
Medical Payments Coverage
170
_____ pays for the bodily injury caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent
Uninsured motorists coverage
171
A ______ is defined as the upset of your covered auto or nonowned auto or its impact with another vehicle or object
They are paid regardless of fault.
collision
172
An _____ loss is a loss due to the following perils:
- Missiles or falling objects
- Hail, water, flood, fire, windstorm
- Theft or larceny
- Explosion or earthquake
- Malicious mischief or vandalism
- Riot or civil commotion
- Contact with a bird or animal
- Glass breakage
other-than-collision
173
This is also covered under the Part D Coverage
A ______ is a private passenger auto, pickup, van, or trailer not owned by or furnished or made available for regular use of the named insured or family member, while it is in the custody of or being operated by the named insured or family member
non-owned auto
174
Cancellation provision: The named insured can cancel at any time by returning the policy to the insurer or providing written notice. If a policy has been in force for more than 60 days, the insurer can cancel only if:
- The premium has not been paid
- The driver’s license of any insured has been suspended, or
- The policy was obtained through material misrepresentation
175
______if an insurer decides to discontinue coverage, the insured must be given notice at least 20 days before the end of the policy period
Nonrenewal:
176
____ a policy is automatically terminated if the insured declines the insurer’s offer to renew
Automatic termination:
177
A _______ can be added to the PAP to insure motorcycles, mopeds, motor scooters, golf carts, motor homes, dune buggies, etc.
- Does not cover snowmobiles
- The liability coverage does not apply to a nonowned vehicle
- A passenger hazard exclusion can be elected, which excludes liability for bodily injury to any passenger on a motorcycle
miscellaneous-type vehicle endorsement
178
This law requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered.
Compulsory Insurance Law
179
This restricts uninsured motorists from suing negligent drivers for noneconomic damages, such as compensation for pain and suffering. Some states are considering the proposal as a method for reducing the number of uninsured drivers.
no pay, no play law
180
______ auto insurance means that after an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault
No-fault auto insurance
181
What are the major types of no-fault laws?
- Pure no-fault plan
- Modified no-fault plan
- Add-on plan
- Choice no-fault plan
182
Under this arrangement, the insurance company must accept all applicants for insurance, both good and bad drivers.
Specialty Insurers
183
Identify the factors that determine the premiums charged for auto insurance.
- Territory
- Age, gender, and marital status
- Use of the auto
- Driver education
- Good student discount
- Number and types of cars
- Individual driving record
- Insurance score
184
Explain the significance of an applicant’s credit score in auto insurance underwriting and rating.
An insurance score is a credit-based score that proponents claim is highly predictive of future claim costs. They believe that individuals who are careful with credit usage will also exercise care in other areas, such as driving behavior
185
Explain the suggestions that consumers should follow when shopping for an auto insurance policy.
- Carry Adequate liability insurance
- carry higher deductibles
- drop collision insurance on older vehicles
- shop around for auto insurance
- take advantage of discounts
- improve your driving record
- maintain good credit
186
Explain the advantages of uninsured motorists coverage in meeting the problem of uninsured drivers.
- Motorists have some protection against an uninsured driver.
- Claim settlement is faster and more efficient than a tort liability lawsuit
187
Explain the defects of uninsured motorists coverage as a technique for compensating people who are injured by uninsured drivers.
- Unless higher limits are purchased the maximum amount paid is limited to the limits specified in the states financial responsibility or compulsory insurance law requirement
- The injured person must establish that the uninsured motorist is legally liable for the accident
- Property damage is not covered in most states
188
A_____ requires motorists to furnish proof of financial responsibility up to certain minimum dollar limits
financial responsibility law
189
A few states have established ______for compensating auto accident victims who have exhausted all other means of recovery
unsatisfied judgment funds
190
_____auto insurance provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance
-Goal is to reduce the number of uninsured drivers
Low-cost
191
____ auto insurance is another method for compensating injured accident victims
- Currently, 22 states, the District of Columbia, and Puerto Rico have some type of ___ law in effect
- After an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault
- Enacted because of dissatisfaction and defects in the traditional tort liability system
No-fault auto insurance
192
Type of no fault plan:
| Under a _____, accident victims cannot sue at all, regardless of the amount of the claim
pure no-fault plan
193
Type of no fault plan:
Under a ______plan, victims have a limited right to sue :
-In some states, an injured driver may sue if the bodily injury claim exceeds a certain monetary threshold
-In some states, an injured driver may sue if the bodily injury claim exceeds a verbal threshold, e.g., if the injury involves death, dismemberment, disfigurement, or permanent loss of a bodily member or function
modified no-fault plan
194
An _____ plan pays benefits to an accident victim without regard to fault, and the injured person has the right to sue the negligent driver who caused the accident
-Not a true no-fault plan
add-on plan
195
Type of no-fault plan:
Under a _____ plan, motorists can elect to be covered under the state’s no-fault law and pay lower premiums
--Or, they can retain the right to sue under the tort liability system and pay higher premiums
choice no-fault
196
No-fault benefits are provided by adding an endorsement to an auto insurance policy, typically called______
Benefits are restricted to the injured person’s economic loss, which includes:
- Medical expenses
- Loss of earnings
- Essential services expenses, e.g., housework
- Funeral expenses
- Survivors’ loss benefits
personal injury protection coverage (PIP)
197
High-risk drivers who have difficulty obtaining auto insurance in the voluntary market can obtain insurance in the ______
shared (residual) market
198
Most states have an auto insurance plan ______ that makes auto insurance available to motorists who are unable to obtain insurance in the voluntary market
- All auto insurers in the state are assigned a proportionate share of high-risk drivers
- Premiums charged are substantially higher than those charged in the voluntary markets
(assigned risk plan)
199
A few states have established a ______, in which auto insurers in the state participate in providing coverage to high-risk drivers through a common pool
- Each insurer pays its pro rata share of pool losses and expenses
- They design the policies and sets the rates
- Underwriting losses are proportionately shared by the companies based on premiums written
- A limited number of insurers are designated as servicing insurers, but all insurers participate in the pool
Joint Underwriting Association (JUA)
200
Identify the basic types of homeowner’s policies that are used today.
- HO – 2 Broad Form
- HO – 3 Special Form
- HO – 4 Contents Broad Form
- HO – 5 Comprehensive Form
- HO – 6 Unit-Owners Form
- HO – 8 Modified coverage form
201
Identify the persons who are insured under a home-owners policy.
-Named insured and residents of the household who are your relatives
-Other persons under age 21
-Full-time student away from home
Under Section II
-Any Person legally responsible for covered animals or watercraft
-With respect to a motor vehicle covered by the policy, coverage applies to persons employed by the named insured or by other insureds, as previously defined, while working for the insured
202
Type of Coverage:
covers the dwelling on the residence premises as well as any structure attached to the dwelling
Coverage A: Dwelling
203
Type of Coverage:
insures other structures on the residence premises that are separated from the dwelling by clear space.
Coverage B: Other Structures
204
Type of Coverage:
property owned by an insured is covered anywhere in the world.
Coverage C: Personal Property
205
Type of Coverage:
provides protection when the residence premises cannot be used because of a covered loss
Coverage D: Loss of Use
206
Type of Coverage
- Debris removal – ex. pays to remove debris after hurricane
- Reasonable repairs – ex. broken window may have to temporarily boarded up after storm (pays cost of boarding it)
- Trees, shrubs, and other plants – ex. lighting strikes an expensive tree, the cost of replacing is covered
- Fire department service charge – ex. will pay up to $500 if insured deemed liable for fire department charge
- Personal property removal – ex. furniture stored in a storage facility after a fire is covered for 30 days
- Credit card, electronic funds transfer card or access device, forgery, and counterfeit money – ex. a credit card is stolen and used, this will be covered up to $500
- Loss assessment – ex. shared loss from homeowners association assessment
- Collapse – ex. if the roof collapses due to the weight of rain water, this is covered
- Glass or Safety Glazing material – ex. if glass shatters during a windstorm, the glass is covered
- Landlords furnishings – ex. policy pays up to $2500 for the landlords loss of furniture in a rent house after a peril
Coverage E: Additional Coverages
207
Why are special limits of liability used?
Because of moral hazard and loss-adjustment problems, and a desire by the insurer to limit it’s liability, certain types of property have maximum dollar limits on the amount paid for any loss.
208
Briefly describe the duties imposed on the insured under a homeowner’s policy after a property loss occurs.
- Give prompt notice
- Protect the property
- Prepare an inventory of damaged personal property
- Exhibit the damaged property
- File a proof of loss within 60 days after the insurers request
209
Homeowner Policy Endorsement:
can be added that covers direct physical loss to property covered under Section I caused by an earthquake. This coverage includes shock waves and tremors related to a volcanic eruption.
Earthquake endorsement
210
Homeowner Policy Endorsement:
To deal with inflation, you can add an inflation
c. guard endorsement to your homeowners policy if it is not included by your insurer. The inflation guard endorsement is designed for use with the ISO home-owner forms and provides for an annual pro rata increase in the limits of insurance under Coverages A, B, C, and D. T
Inflation Guard Endorsement
211
Homeowner Policy Endorsement:
. ___ can be added to the policy. Under the endorsement, claims are paid on the basis of replacement cost with no deduction for depreciation. The endorsement applies to personal property, awnings, carpets, domestic appliances, and outdoor equipment.
personal property replacement cost loss settlement endorsement
212
Homeowner Policy Endorsement:
If you own valuable jewelry, furs, silverware, cameras, musical instruments, fine arts, antiques, or a stamp or coin collection, you can list the property in a schedule and insure it for a specific amount agreed to by the insurer.
Scheduled personal property endorsement (with agreed value loss settlement)
213
Homeowners insurance premiums are based on a number of factors. Identify the major factors that determine the cost of a homeowner’s policy.
- Construction
- Location
- Fire Protection Class
- Construction Costs
- Age of the Home
- Type of Policy
- Deductible Amount
- Insurance Score
- Loss History Report
214
Why do insurers use insurance scores in underwriting and rating for homeowners insurance?
Insurance scores predict the average claim behavior for a group of insureds with essentially the same credit history. Insurers claim there is a strong and statistically significant relationship between insurance scores and underwriting experience. The lower the insurance score, the more likely insureds as a group are likely to file homeowners claims.
215
Briefly explain the suggestions that consumers should follow when shopping for a homeowner’s policy.
- Carry Adequate Insurance
- Add Necessary Endorsements
- Shop around for a homeowners policy
- Consider a Higher Property Insurance Deductible
- Take advantage of discounts
- Don’t ignore floods and earthquakes
- improve your credit record
- Consider purchasing a personal umbrella policy
216
Homeowner Policy Endorsement:
| reimburses crime victims for the cost of restoring their identity and cleaning up their credit report
Identity Theft Endorsement
217
A _____report shows up to seven years of information on property claims, including the date of loss, type of loss, and amounts paid
-The use of these reports is controversial
Comprehensive Loss Underwriting Exchange (CLUE)
218
The ISO Dwelling program has several forms. What are they?
- Dwelling Property 1 (Basic Form)
- Dwelling Property 2 (Broad Form)
- Dwelling Property 3 (Special Form)
219
Some dwellings that are ineligible for coverage under the HO policy can be insured under an _____
- The forms are narrower in coverage
- The forms do not include coverage for theft or personal liability without appropriate endorsements
ISO dwelling policy (Insurance Services Office)
220
Type of ISO Dwelling Program:
provides coverages similar to the Homeowners Policy
- Coverages A and B insure the dwelling and other structures
- Coverage C covers personal property
- Coverage D covers the fair rental value if part of the dwelling is rented
- Coverage E can be added to provide coverage for additional living expenses
- Only a limited number of named perils apply to both the dwelling and the personal property
- All covered property losses are paid on an actual cash value basis, with some exceptions
Dwelling Property 1 (Basic Form)
221
Type of ISO Dwelling Program:
covers losses to the dwelling and other structures on a replacement cost basis
The list of named perils is expanded
Dwelling Property 2 (Broad Form)
222
Type of ISO Dwelling Program:
covers the dwelling and other structures on an “open perils” basis
Endorsements to the dwelling form include:
- Theft coverage
- Personal liability supplement
Dwelling Property 3 (Special Form)
223
Under the ISO program, _____ is written by adding an endorsement to an HO-2 or HO-3 policy
- The structure must be at least 10 feet wide and 40 feet long, and capable of being towed on its own chassis
- The coverages are similar to those found in a homeowners policy
mobile home insurance
224
An____ provides broad coverage on property frequently moved from one location to another and on property used in transportation and communications
inland marine floater
225
The _____ is an inland marine floater that provides comprehensive protection on valuable personal property
- This coverage can be written as a stand-alone contract
- This insures certain classes of personal property on an “open perils” basis
- The coverage can also be added as a scheduled personal property endorsement to an HO policy
personal articles floater (PAF)
226
A _____combines physical damage insurance on the boat, medical expense insurance, liability insurance, and other coverages into one policy'
___ is designed for larger boats
boatowners package policy
yacht insurance
227
The _____ provides insurance coverage to property owners in flood-prone areas
- Flood insurance is purchased from agents or brokers who represent private insurers
- Under the write-your-own program, private insurers sell federal flood insurance under their own names, collect the premiums, and receive an expense allowance
- The federal government is responsible for all underwriting losses
- The program is administered by the Federal Emergency Management Agency (FEMA)
National Flood Insurance Program
228
Definition:
A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow
A flood is defined in the Standard Flood Insurance Policy
229
The_____ Act of 2012 extends the NFIP program through September of 2017
Biggert-Waters Act
230
The _____ was enacted in response to large premium increases
The main provisions of the Act include:
- Lowering some premium increases and prevent some future increases
- Attaching a $25 surcharge to every flood insurance policy on a primary residence to help fund the deficit
- Requiring FEMA to consider loss mitigation efforts when determining premiums
Homeowner Flood Insurance Affordability Act of 2014
231
The _____ created FAIR plans (Fair Access to Insurance Requirements).
- Plans provide coverage to urban property owners who are unable to obtain coverage in the standard market
- Plans cover property for fire and extended-coverage perils, vandalism, and malicious mischief
- A building insured under a FAIR plan must meet certain underwriting standards
- A state with a FAIR plan creates a pool or syndicate of private insurers to provide basic property insurance
Urban Property and Reinsurance Act of 1968 created FAIR plans (Fair Access to Insurance Requirements)
232
_____ protects the owner of property or the lender of money for the purchase of property against any unknown defects in the title to the property under consideration
- If there is a defect in a title, the owner could lose the property to someone with a superior claim
- Examples of defects to the title include an invalid will, incorrect description of the property, and undisclosed liens
Title insurance
