Week 9 - Home Auto Purchase

Question 1

What type of insurance should you never go without?

Answer 1

Health insurance

Question 2

Many americans have life insurance, but this type of insurance is often overlooked…

Answer 2

Disability insurance

Question 3

Which type of life insurance should generally be avoided, and is often pushed by aggressive salespeople?

Answer 3

Cash value insurance

Question 4

(T/F) Many homeowners significantly overpay for their mortgage

Answer 4

True

Question 5

When is the financial breakeven for home buying?

Answer 5

Around 6-10 years which means it doesn’t make sense to buy unless you are in your house for more than 6-10 years

Question 6

What percent should you put down as down payment

Answer 6

20%

Question 7

What are examples of monthly home ownership costs?

Answer 7

Mortgage, property tax, homeowners insurance, PITI (principal, interest, taxes, insurance), maintenance, repairs, upgrades

Question 8

What are the types of mortgages?

Answer 8

30 year fixed, 15 year fixed, ARM (adjustable rate mortgage)

Question 9

What is an ARM?

Answer 9

An adjustable rate mortgage that is fixed for a specific amount of time, then can adjust up or down based on current interest rates. Generally cheaper up front but comes with uncertainty.

Question 10

(T/F) You should avoid interest only loans for your mortgage

Answer 10

True; you never build equity

Question 11

What is the point of mortgage insurance?

Answer 11

It doesn’t protect YOU, it protects the bank if you default. Often paid when a buyer puts down < 20%

Question 12

What is an escrow account?

Answer 12

When your mortgage company makes payments for you each month, to minimize their risk

Question 13

When should you refinance your mortgage?

Answer 13

When the monthly savings x months left would overcomes the refi costs. Compare apples to apples with number of months

Question 14

What happens when you refinance your mortgage?

Answer 14

Refinancing resets the loan

Question 15

What are types of autoinsurance?

Answer 15

1. Bodily
2. Property

Question 16

Fault vs. no fault

Answer 16

fault - person who causes accident has to pay all damages
no-fault.- anyone injured pays their own bills

Question 17

What happens if you are in a no-fault state?

Answer 17

You are required to have personal injury protection insurance

Question 18

What are the 5 add-ons to auto-insurance

Answer 18

1. uninsured motorist (covers if driver doesn’t have insurance)
2. underinsured motorist (should get w/ 1)
3. collision (pays damage to your car)
4. comprehensive (covers damage to your car other than collisions)
5. medical payments coverage (medical expenses from accidents, you and passengers)

Question 19

(T/F) The less insurance, the lower the premiums

Answer 19

True

Question 20

What are the three types of policies for homeowner’s insurance?

Answer 20

1. Actual cash value - craigslist
2. Replacement cost - similar item
3. Guaranteed replacement - full cost up to amount above policy limit

Question 21

What is named perils coverage?

Answer 21

Only covers risks specific to policy

Question 22

What is all risks coverage?

Answer 22

Covers everything except things explicitly excluded, better than named perils

Question 23

Do you need separate policies for natural disasters?

Answer 23

Yes

Question 24

What are three types of standardized forms?

Answer 24

• HO2 - basic
• HO3 - common
• HO5 - most comprehensive, expensive

Question 25

What is NOT a major type of liability coverage in a standard auto insurance policy?

Answer 25

Collision

Question 26

What type of auto insurance coverage pays for medical expense of people you injure who are in a car that you hit (if you are at fault), but not your own medical expenses if you are injured.

Answer 26

Liability coverage

Question 27

Below are a list of suggested actions to take after an auto accident. Choose all the correct answers.
a) Remain calm
b) Do not admit fault
c) Check for any injuries and administer first aid if necessary
d) Say nothing to anyone, just drive away quickly

Answer 27

a, b, c

Question 28

Which of the following would be covered by comprehensive coverage in an automobile policy?
a) Losses from damage to your car in an accident with another car that you cause.
b) Cost have having the car towed if it breaks down on a highway.
c) Losses from theft of the car.
d) Medical expenses for people injured in an accident that you cause.

Answer 28

c) Losses from theft of the car

Question 29

Approximately what fraction of drivers in the US do not have automobile insurance?

Answer 29

1/7

Question 30

Automobile insurance quotes typically provide three limits for liability coverage. If you buy a policy with 100/300/50 coverage limits what type of coverage have you purchased?

Answer 30

$100,000 bodily injury liability insurance per person, $300,000 total bodily injury liability insurance per accident, and $50,000 property damage liability per accident.

Question 31

(T/F) At the end of a car lease, if you return the car to the leasing company you cannot be charged for tears, scratches, and dents.

Answer 31

False

Question 32

(T/F) A good rule of thumb for auto insurance is to insure your car for the minimum limits required in your state.

Answer 32

False

Question 33

(T/F) To save money on auto insurance, Professor Odean recommends that you reduce your liability coverage.

Answer 33

False