Insurance Test - MoneyPower

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1 Insurance Test - MoneyPower Multiple Choice Identify the choice that best completes the statement or answers the question. 1. For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive a. one-fifth of the $20,000 face value. b. $20,000 less the premiums paid. c. a calculated amount of money which includes the premiums paid as well as the interest on that money. d. a calculated amount of money that must be converted to a term life insurance policy. 2. A woman has just received a very expensive piece of jewelry. The woman has homeowner s insurance. Which statement would it be most appropriate for her to make to her insurance agent? a. I think I need a personal property floater. b. I think I should get speculative risk insurance. c. I will deduct the cost of the jewelry from my premium. d. I realize that if this jewelry is stolen it will be considered vicarious liability. 3. A person buys a flat screen, plasma, theater-like television. The person has homeowner s insurance. Why would it be appropriate to add a personal property floater to that insurance? a. To reduce the premium on the homeowner s insurance. b. To protect the person who owns the television from liability for damages. c. To show the insurance company a good faith investment has been made. d. To cover the cost of replacement should the television get damaged or stolen. 4. Debbie owns a clothing store. She is concerned that a customer who is injured in the store will sue. Which type of insurance should Debbie purchase? a. Social insurance c. Surety bonds b. Life insurance d. Liability insurance 5. Generally, the higher the deductible on an insurance policy, the a. greater the premium. b. lower the premium. c. more frequently the premium has to be paid. d. less frequently the premium has to be paid. 6. If you have a managed health care plan, it means that you: a. Usually must first meet with your primary health care physician b. Can go to any doctor at any time c. Will be responsible for $100 of a doctor bill d. Can apply for an 80% reimbursement of the amount paid to the doctor 7. Sally took out a $50,000 life insurance policy. The $50,000 amount of coverage is called the: a. Cash value c. Death benefit or face value b. Premium value d. Annuity value 8. You have a $2,000 loss. Your insurance company pays you $1,500 on the claim for the loss. The $500 the insurance did not pay is a result of your policy having a: a. Co-insurance clause c. Hazard clause b. Deductible d. Premium

2 9. Richard s auto insurance policy expired on 5/15/202. Richard was upset with his insurance agent and decided to change insurance companies. At 10:00 a.m. on 5/16/2002, as he drove to a different agent to buy a new policy, he had an accident. Who is liable for damage to his car and his personal injuries? a. The old agent b. The new agent c. Richard d. The old agent is liable for damage to your car and the new agent for personal injuries 10. Mr. Akon s wife died. The money he received as the beneficiary on her life insurance is called the: a. Cash value c. Separate value b. Death benefit or face value d. Premium or annuity value 11. Why is term life insurance usually the least expensive type of life insurance? a. The policy only pays a death benefit b. The policy builds a cash value c. The policy provides coverage for a lifetime d. The policy is available to all consumers 12. When a self-employed person decides to purchase disability insurance it is generally to a. lessen the possibility of becoming injured. b. protect against the financial effects of not being able to work. c. eliminate the chance of going out of business. d. insure that the cost of injury caused to others will be reimbursed. 13. Insurance is frequently described as a method of sharing the risk because the: a. Risk of loss is shared with the insurance company sales person b. Insured shares the risk of loss with all the other policy holders c. Insured can share the risk by spreading the cost over a number of years d. Risk of loss is shared with the government 14. The only type of life insurance that does not develop a cash value is: a. Term life insurance c. Universal life insurance b. Whole life insurance d. Variable universal life insurance 15. Which of the following insurance covers vehicles? a. Mortgage c. Automobile b. Racing d. Life 16. John s job provided the main income for his family. He died unexpectedly and had no life insurance. The probable financial consequence for his wife and two children does not include: a. The loss of John s income b. A reduction in the family s standard of living c. Death-related expenses to be paid d. An increase in income and expenses 17. Sally s health insurance policy requires her to pay the first $500 of medical costs each year before the company will pay any of her medical bills. This policy provision is the: a. Co-insurance clause c. Annual deductible b. Premium d. Major medical benefit

3 18. Ben s truck is crushed by a hit-and-run driver. Scott is hit by an uninsured driver. How will they receive payments? a. State motorist coverage b. Uninsured or no-fault motorist coverage c. Insolvent motorist coverage d. Auto liability coverage 19. Lucy has no insurance. The situation(s) should she consider insuring against first are: a. Death so her financial obligations are paid b. Losses resulting from an illness, accident, or disability c. Property losses and auto accidents d. Auto collision, and burglary 20. The purpose of Insurance is NOT to: a. Diversify an investment portfolio b. Share risk with other policy holders and the insurance company c. Protect assets d. Protect against potential losses 21. Gwen receives a bill from her auto insurance company, and she sends a check to the company to make sure her policy is not canceled. The cost of her policy is called the: a. Co-insurance clause c. Deductible b. Premium d. Exclusion 22. Neil will be traveling by air in Southeast Asia for a six-week vacation. Which step WILL NOT provide protection during the trip? a. Buy baggage claim insurance b. Take his passport c. Buy flight insurance d. Buy medical insurance that covers him when he travels internationally 23. A person buys a homeowner s insurance policy with a $250 deductible, which means the person will a. have to pay a quarterly premium of $250. b. have to pay the first $250 which will be deducted from the claim settlement paid by the insurance company. c. only receive payment from the insurance company of $250 for any single article damaged. d. not be responsible for the first $250 of the claimed damages. 24. When Jessie needs health care, she must first go to her primary care physician who coordinates her care and decides whether Jessie should see a specialist. Jessie pays $10 as the co-pay when she sees her primary care doctor. Jessie has which type of health insurance? a. Fee-for-service health plan c. Medicaid health plan b. Managed care health plan d. Comprehensive health plan 25. Which statement does NOT accurately describe a characteristic of cash value for whole life insurance? a. Cash value grows gradually over time b. If the policy is canceled, you may be entitled to some or all of the accrued cash value c. Policy that accumulates cash value is less expensive than a policy that does not accumulate cash value d. When an insured person dies, the beneficiary will receive the death benefit but the insurance company keeps the cash value

4 Insurance Test - MoneyPower Answer Section MULTIPLE CHOICE 1. ANS: C The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned. 2. ANS: A A personal floater is additional property insurance, which is available within a homeowner s policy, to cover damage or loss of a specific item of value. 3. ANS: D An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or floater to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the floater coverage. 4. ANS: D A liability is legal responsibility for financial cost of another person s losses or injuries. Despite taking great care, a person may still be held liable in a situation. Most basic property insurance covers liability up to a specific dollar amount. Additional amounts are frequently recommended. 5. ANS: B The deductible is the amount of money that the policy holder pays when a claim is settled. If a person has damage to a car and the total bill is $3000 and the insurance company agrees to settle for the full amount, the policy holder still receives less than the full $3000 depending on the deductible agreed to (usually it is from $250-$1000). The higher the deductible (if the policy holder agrees to pay the first $1000 o any claim rather than only $250 or $500), the lower the insurance premium the insurance company charges the policy holder. In other words, the company is willing to charge the policy holder less for the policy if the person agrees to pay more if there is a claim. A way to save money on car insurance is to agree to pay a higher deductible. 6. ANS: A A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. while differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-payments.

5 7. ANS: C The face value, face amount, or death benefit is the amount of money that a life insurance policy will pay to the beneficiary on the death of the insured person. Any outstanding policy loans will reduce the death benefit by an amount equal to the unpaid loan balance. 8. ANS: B Most homeowner's insurance policies include a deductible. The policy owner is responsible for the deductible amount before the insurance company will pay any portion of the claim. Thus, the policyholder must pay for all losses equal to or less than the deductible. Raising the deductible on a policy causes the premium to decrease, sometimes significantly. 9. ANS: C Insurance policies expire at 12:01 a.m. on the expiration date. Because Richard's policy had already expired at 12:01 a.m. that day, he had no auto insurance coverage at the time (10:00 a.m. the day after the policy expired) of his auto accident. Therefore, he is responsible for all personal injury and vehicle damage expenses resulting from the accident. 10. ANS: B The face value, face amount, or death benefit is the amount of money that a life insurance policy will pay to the beneficiary on the death of the insured person. Any outstanding policy loans will reduce the death benefit by an amount equal to the unpaid loan balance. 11. ANS: A Term life insurance is the least expensive type of life insurance because it is only a death benefit and insures the individual for a limited number of years... There is no cash value accumulation. The death benefit is paid only if the insured dies during the term of coverage. 12. ANS: B Disability insurance pays benefits (money) to a policyholder when that person becomes unable to perform job duties, either temporarily or on a long-term or permanent basis.

6 13. ANS: B Part of every policyholder's premium is put into a "pool" from which the few policyholders who have claims are paid. Policyholders know that some of them will experience losses and make claims; they just don't know who it will be. By sharing the risk, each policyholder can cover large risks at a low premium cost. 14. ANS: A Term life insurance provides a death benefit at a low premium cost. All other types of life insurance are described as cash value life insurance because they develop some type of cash value or cash accumulation. 15. ANS: C Automobile insurance covers motor vehicles, including automobiles, trucks, and motorcycles, the injuries to the driver and passengers, and possible damage to the other car and its occupants in an accident. 16. ANS: D The largest cost for the surviving family if a spouse dies is ongoing income, especially until the children are grown. Dual-earner families usually need both incomes to maintain their lifestyles and financial obligations, such as mortgages, car loans, and credit card debt. When one wage-earner dies prematurely, the other one needs ongoing income until the debts are paid off and/or lifestyle changes are made. Being under-insured or lack of insurance typically results lowers the family's standard of living. 17. ANS: C The deductible is the dollar amount of medical expenses that the insured must pay each year before the insurance company pays anything. Deductibles are used in medical, auto, and property insurance. A basic insurance principle is the higher the deductible, the lower the premium. 18. ANS: B Uninsured or no-fault motorist's protection covers the cost of injuries to the policyholder and family members. Uninsured or no-fault motorist's protection also covers car repairs, financial losses due to injuries, car damage caused by a hit-and-run driver, or the cost of other people's injuries by a driver who has insufficient coverage.

7 19. ANS: B A basic principle of insurance is to insure major potential losses and handle small losses from one's own resources. A young single person with no dependents does not need life insurance, but does need auto, health, and disability insurance. Health and disability insurance might be provided by an employer. Consumers pay for their own auto and property insurance. 20. ANS: A A basic principle of insurance is to insure major potential losses and handle small losses from one's own resources. Part of every policyholder's premium is put into a "pool" from which the few policyholders who have claims are paid. Policyholders know that some of them will experience losses and make claims; they just don't know who it will be. By sharing the risk, each policyholder can cover large risks at a low premium cost. 21. ANS: B The periodic payment made by a policy owner to keep the policy in force is called the premium. People can choose to pay the premium once a year (annually), semi-annually, quarterly, or monthly. Paying a premium annually will cost the least. 22. ANS: B Many medical insurance policies do not cover or severely limit medical care received outside the U.S. when traveling to certain areas of the world. Luggage is more likely to be lost during international travel with multiple stops, and airlines will reimburse travelers only up to a certain dollar amount for lost luggage. Most international airline tickets are expensive, and flight insurance reimburses the traveler if he/she cannot take the flight due to illness or accident. 23. ANS: B The deductible is the amount of money that the policy holder pays when a claim is settled. If a person has items stolen and the total bill is $3000 and the insurance company agrees to settle for the full amount, the policy holder still receives less than the full $3000 depending on the deductible agreed to (usually it is from $250 - $1000). The higher the deductible (if the policy holder agrees to pay the first $1000 on any claim rather than only $250 or $500), the lower the insurance premium the insurance company charges the policy holder. In other words, the company is willing to charge the policy holder less for the policy if the person agrees to pay more if there is a claim. A way to save money on insurance is to agree to pay a higher deductible.

8 24. ANS: B A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. While differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-payments. 25. ANS: C Cash value is a dollar amount that increases over the years. The cash value is erroneously called the "policyholder's savings." The policyholder receives the cash surrender value (cash value less the surrender fee and less the loan balance) if he/she surrenders the policy. With almost all life insurance policies, if the insured dies, the beneficiary receives the death benefit, but not the cash value.

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