State Farm Car Policy Review
U of I Student Health Policy Review
Assignment 7
Assignment 8
Assignment 9
Assignment 10
Brian’s Special Rules
 First decide what type of car it is and if it is covered
 Insurance follows the car, driver pays excess
 Spouse’s car is never covered
 Rental cars are covered up to 21 days
 Replacement cars covered for up to 30 days
 Additional Cars covered up to 30 days or until
effective date of policy
 Know the flow chart for non-owned cars
Problem #1
On September 30th, 2007, you trade in your 2001 Sebring
(with an Actual Cash Value of $12,000) for a new 2007
Range Rover that costs $85,000. On October 26th, 2007,
you let your spouse borrow your car. Your spouse has
his/her own policy with Allstate with the same coverage
limits as you have. On the highway, your spouse swerves
off the road to avoid hitting a deer and crashes into a road
sign, totaling your brand new Range Rover. Your policy
will pay:
A. $0
B. $11,900
C. $84,900
D. $85,000
E. None of the above
Problem #1 Answer
 Correct Answer: C - $84,900
 This is a Newly Acquired Car – Replacement Car
 Your State Farm Auto Policy will cover a replacement car
within 30 days of its delivery.
 $85,000 Collision damage

100 deductible
$84,900
Problem #2
You are tanning on the beach one day when a car
comes out of nowhere and runs over your leg.
The driver of the car has a policy with
Nationwide with liability limits of 50/100/25.
You incur $10,000 in medical bills and you would
be entitled to a bodily injury award of $120,000.
Your policy will pay:
A. $0
B. $10,000 C.
C. $70,000
D. $130,000E. None of the above
Problem #2 - Answer
 C. $70,000
You are COVERED because you are hit by a land
motor vehicle with four wheels designed for use
mainly on public roads (regardless of whenever
you are off or on public roadways).
You incur $120,000 of Bodily Injury
The other car’s insurance will pay up to its $50,000
BI / person limit
$120,000
- 50,000
=$70,000 Underinsured Motor Vehicle coverage
YOU are ON
Public
Roadways
Land motor vehicle COVERED
designed for use
mainly ON public
roadways
Land motor vehicle COVERED
designed for use
mainly OFF public
roadways
YOU are
OFF Public
Roadways
COVERED
NOT
COVERED
Problem #3
 You and your Aunt Mary (who lives in Colorado)
are on vacation in California. You borrow her car
one day to go to the grocery store. On the way to
the grocery store, you crash into another car and it
is your fault. The other driver is entitled to a
bodily injury award of $80,000 and his car incurs
$11,000 of damage. You incur $20,000 of medical
bills and your Sebring is totaled (Actual Cash
Value = $12,000). Your policy will pay:
 A. $0
B. $91,000
C. $111,000
 D. $122,900
E. None of the Above
Problem #3 - Answer
 D. $122,900
Your Aunt Mary’s car is a non-owned car. She is not
defined as a “relative” because she does not reside
primarily with you.
$80,000 BI Liability
+11,000 PD Liability
+20,000 Medical Payments
+11,900 Collision (12,000–100 Deductible)
Problem #4
Your son just turned 16, and you let him borrow
your Sebring. Backing out of the garage, he hits
the garage door, runs over the mailbox, and hits
your 5-yr old next door neighbor. The garage
door costs $2,300 to fix, the mailbox costs $200 to
replace, and your 5-yr old neighbor incurs
$30,000 of medical bills and is entitled to a
$60,000 bodily injury settled. Your policy will
pay:
A. $0
B. $60,000
C. $90,000
D. $92,500 E. None of the above
Problem #4 - Answer
 B. $60,000
Your son is an insured.
$60,000 Bodily Injury is covered (includes the $30,000
Medical Payments)
Property damage to property you own are NOT covered.
Problem #5
While on a camping trip, you park your car in a
nearby parking lot. When you return a few days
later, you notice that your trunk lock’s has been
picked and your clothes and luggage has been
stolen. It costs $2000 to replace your clothes and
luggage; the ACV was $1200. Your policy will pay:
A. $0
B. $200
C. $1200
D. $2000
E. None of the above
Problem #5 - Answer
 A. $0
The clothes and luggage are not covered. Clothes and
luggage are only covered for theft if your entire car has
been stolen.
Brian’s Health Strategy
Check to see if excluded p. 14 – 15
2) Inpatient or Outpatient
1)
1)
Easy way to tell is if have room and board charges,
then inpatient
3) Check limits of coverage and deductible for each
charge
1)
If inpatient, calculate separately the In-Hospital
Expense Benefit
4) Add everything together and make sure not over
limits
Health Question 1
You badly injure your ankle while rollerblading. You
are hospitalized for 6 days and have surgery. You are
billed $500 per day for hospital room and board,
$10,000 for the surgeon, $2,500 for the assistant
surgeon and $4,000 for the anesthesia (which is
administered by a licensed Physican who remained
in constant attendance during your operation).
A) 0 B) $12,050 C) $24,100
D) $24,500 E) None of the above
Health Question 1 Answer
In-Hospital Expense Benefit:
6 x $500 (room and board)
+$10,000 (x-rays)
-$100 (deductible)
$12,900
80% x $10,000 + $2,900 = $10,900
Inpatient:
$10,000 x .8 (surgeon) + $2,500 x .8 (assistant surgeon) +
$4,000 x .8 (anesthesia) = $13,200
Total:
$10,900 + $13,200 = $24,100
Health Question 2
You visit a doctor two times for a bad case of the flu. The
doctor prescribes some medicine and performs some
tests to see if you have meningitis, but fortunately you
don’t. You are billed $100 for each visit to the doctor,
$200 for the laboratory tests and $100 for the medicine.
A) 0
B) $170
C) $200
D) $280
E) None of the above
Health Question 3 Answer
Outpatient - Medicine not covered
$200 (each visit)
+$200 (laboratory tests)
-$150 (deductible)
$250
$250 x .8 = $200
**deductible applies once b/c same sickness p 4
Health Question 3
You have an eye exam and get a new set of glasses. The
exam costs $100 and the glasses cost $200.
A) 0
B) $80
C) $120
D) $240
E) None of the above
Health Question 3 Answer
Exclusion:
Eye examinations and eyeglasses p 14 #9
Total:
0
Coordination of Benefits
Introduction to Life Insurance
Use for questions 1 & 2
You are driving your car along Green Street when a squirrel
darts out in front of your car. You swerve to avoid hitting
the animal, but you lose control and crash into a light pole.
An ambulance races you to Carle Hospital where you are
hospitalized for 20 days and undergo extensive surgery.
The surgeon charges you $40,000 for the surgery, the
assistant surgeon charges $9,000 and the anesthesia costs
$20,000. The anesthetist personally administered the
anesthesia and remained in constant attendance during the
surgery. You are billed $500 per day for the hospital room
and board, $5,000 for the operating room expenses and
$2,500 for medicine while in the hospital. You are billed
$500 for the ambulance ride. It costs $9,000 to repair your
car, which had a $15,000 cash value at the time of the loss.
Health Insurance
What is the Initial Benefit Payment under the U of I
Undergraduate Student Insurance Plan?
A. $0
B. $35,500
C. $35,825
D. $42,450
E. None of the above
Health Insurance
What is the Initial Benefit Payment under the U of I
Undergraduate Student Insurance Plan?
A. $0
B. $35,500
C. $35,825
D. $42,450
E. None of the above
Health Insurance
What is the Total Payment the U of I Undergraduate
Student Insurance Plan will make on this loss?
A. $0
B. $53,100
C. $62,000
D. $71,000
E. None of the above
Health Insurance
What is the Total Payment the U of I Undergraduate
Student Insurance Plan will make on this loss?
A. $0
B. $53,100
C. $62,000
D. $71,000
E. None of the above
Life Insurance
Based on the Commissioners 1980 Standard
Mortality Table (Appendix F in the text), how
old would a male be when he lived has lived half
his total life expectancy (within 1 year)?
A. 24
B. 37
C. 39
D. 50
E. None of the above
Life Insurance
Based on the Commissioners 1980 Standard
Mortality Table (Appendix F in the text), how
old would a male be when he lived has lived half
his total life expectancy (within 1 year)?
A. 24
B. 37
C. 39
D. 50
E. None of the above
Life Insurance
A 30-year-old female purchased a $100,000 whole
life policy for $1,500 a year. She receives
dividends of $5,000 over time. At age 60, she
surrenders that policy for $70,000. If this
individual is in the 28% tax bracket at that point,
how much does she have to pay in taxes when
she surrenders the policy?
A. $0
B. $5,600
C. $8,400
D. $30,000
E. None of the above
Life Insurance
A 30-year-old female purchased a $100,000 whole
life policy for $1,500 a year. She receives
dividends of $5,000 over time. At age 60, she
surrenders that policy for $70,000. If this
individual is in the 28% tax bracket at that point,
how much does she have to pay in taxes when
she surrenders the policy?
A. $0
B. $5,600
C. $8,400
D. $30,000
E. None of the above
Life Insurance
Which of the following would be the most appropriate
for an individual who is looking for a tax sheltered
investment and is willing to accept risk in hopes of a
higher return?
A. Re-entry term
B. Endowment life
C. Whole life
D. Yearly renewable term
E. Variable life
Life Insurance
Which of the following would be the most appropriate
for an individual who is looking for a tax sheltered
investment and is willing to accept risk in hopes of a
higher return?
A. Re-entry term
B. Endowment life
C. Whole life
D. Yearly renewable term
E. Variable life
Life Insurance
Table of Guaranteed Values
End of
Policy Year
August 1,
Cash Value
Paid-Up
Insurance
$100,000
Extended
Term
Insurance to
10
2005
11,411
37,400
Oct 13,
2023
11
2006
12,933
40,600
Aug 15,
2025
Problem #1
John surrenders the policy on August 1,
2005, and selects the paid-up insurance
option. If he dies in a fire on May 9,
2035, how much will his wife Jane
receive from the insurance company?
A.
B.
C.
D.
E.
$0
$19,629
$37,400
$100,000
None of the above
Problem #1
John surrenders the policy on August 1,
2005, and selects the paid-up insurance
option. If he dies in a fire on May 9,
2035, how much will his wife Jane
receive from the insurance company?
A.
B.
C.
D.
E.
$0
$19,629
$37,400
$100,000
None of the above
Problem #2
John Doe pays his first ten annual premiums on
time, but then decides he no longer wants to
pay premiums. Thus, he stops paying at that
point. If John dies on August 30, 2025, how
much will his wife Jane receive from the
insurance company?
A. $0
B. $40,600
C. $43,700
D. $100,000
E. None of the above
Problem #2
John Doe pays his first ten annual premiums on
time, but then decides he no longer wants to
pay premiums. Thus, he stops paying at that
point. If John dies on August 30, 2025, how
much will his wife Jane receive from the
insurance company?
A. $0
B. $40,600
C. $43,700
D. $100,000
E. None of the above
Problem #3
Assume that the company paid a total of
$5,000 in dividends in the first ten years.
If John Doe surrenders the policy on
August 1, 2005, for the cash value, how
much of the proceeds will be taxable
income for him?
A. -$3,919
B. $0
C. $1,081
D. $11,411
E. None of the above
Problem #3
Assume that the company paid a total of
$5,000 in dividends in the first ten years.
If John Doe surrenders the policy on
August 1, 2005, for the cash value, how
much of the proceeds will be taxable
income for him?
A. -$3,919
B. $0
C. $1,081
D. $11,411
E. None of the above
Problem #4
 If John had lied about his gender and said he was a female
when he bought the life insurance policy in 1995, which of
the following would happen if he died on October 18,
2007, and the insurance company then found out he was
actually a male?
A. The insurance company would have to pay Jane the full
benefit because it only had two years to cancel the
policy.
B. The insurance company will adjust the death benefit to
reflect the actual gender of John.
C. The insurance company won’t pay any benefit to Jane
because John lied about a material fact and therefore a
valid contract never existed..
D. None of the above
Problem #4
 If John had lied about his gender and said he was a female
when he bought the life insurance policy in 1995, which of
the following would happen if he died on October 18,
2007, and the insurance company then found out he was
actually a male?
A. The insurance company would have to pay Jane the full
benefit because it only had two years to cancel the
policy.
B. The insurance company will adjust the death
benefit to reflect the actual gender of John.
C. The insurance company won’t pay any benefit to Jane
because John lied about a material fact and therefore a
valid contract never existed..
D. None of the above
Problem #5
 John Doe terminates his life insurance policy on August 1,
2006, and selects the paid up insurance option. John dies
of illness on January 17, 2018. If his wife Jane has an
adjusted age of 65 at this point, what is the minimum
payment she will receive if she elects to receive a life
income with 10 years certain?
A. $199
B. $202
C. $205
D. $221
E. None of the above
Problem #5
 John Doe terminates his life insurance policy on August 1,
2006, and selects the paid up insurance option. John dies
of illness on January 17, 2018. If his wife Jane has an
adjusted age of 65 at this point, what is the minimum
payment she will receive if she elects to receive a life
income with 10 years certain?
A. $199
B. $202
C. $205
D. $221
E. None of the above
 ($40,600 / $1,000) x 4.89 = $199
Life Insurance Cost Comparisons
Liability Exposures
Whole Life Policy for 30 year old male
Face Amount
Annual Premium
Dividends
in year 20
first 20 years in total
$200,000
4,200
2,500
25,000
Cash Values
end of 19th year
end of 20th year
Accumulated Value of Dividends at
the end of 20 years at 6.5%
80,000
87,000
40,000
Question 1
What is the traditional net cost index per $1,000 of
coverage?
A.
B.
C.
D.
E.
-10.75
-8.50
-7.00
8.50
None of the above
Question 1 - Answer
ANSWER: C
Premiums Paid
(20 x 4200)
-Dividends Received
-Cash Value at end of period
=Net Cost
÷ (Years x Policy Face per $1,000) (20 x 200)
= Traditional Net Cost Index
84,000
-25,000
-87,000
-28,000
÷4,000
-7.00
Question 2
What is the 20 year interest adjusted surrender cost
index per $1,000 of coverage based on a 6.5 percent
interest rate?
A.
B.
C.
D.
E.
1.71
5.64
7.46
11.67
None of the above
Question 2 - Answer
ANSWER: B
Annuity due factor = (1+i)(n+1) - (1+i) = (1.065)(21) - (1.065) = 41.349
i
0.065
Premiums at Interest (4200 x 41.349)
-Dividends at Interest
-Cash Value at end of period
=Interest Adjusted Cost Cost
÷ (ADF x Policy Face per $1,000) (41.349 x 200)
= Traditional Net Cost Index
173,666
-40,000
-87,000
46,666
÷8,270
5.64
Question 3
What is the yearly rate for the 20th policy year if the
annual renewable term rate for this individual is $2.00
per $1,000?
A.
B.
C.
D.
E.
1.1%
6.6%
6.8%
10.6%
None of the above
Question 3 - Answer
ANSWER: B
Yearly Rate of Return for Policy Year t =
CVt + Dt + (YPt)(Ft - CVt)(.001) - 1
Pt + CVt-1
CV
= cash value
D = dividends
YP
= yearly price per $1000 of renewal term
F = death benefit
P = premium paid at beginning of year
Yearly Rate of Return for Policy Year 20 =
87,000 + 2,500 + (2.00)(200,000 – 87,000)(.001)
4,200 + 80,000
- 1
=
6.6%
Question 4
Which types of damages are covered under the Coverage A
– Liability section of the State Farm Car policy covered in
class?
I.
II.
III.
A.
D.
Special Damages
General Damages
Punitive Damages
I only
I, II and III
B. I and II
E.
C.
I and III
None of the above
Question 4 - Answer
ANSWER: D
The liability coverage in your State Farm Auto Policy will
pay special, general, and punitive damages. The policy
states:
“We will pay damages which an insured becomes legally
liable to pay because of
a. bodily injury to others, and
b. damage to or destruction of property including loss
of its use”
(page 6)
Question 5
Under which of the following provisions could you be held
liable for the negligent acts of another person?
A.
B.
C.
D.
E.
Contributory negligence
Last Clear Chance
Strict Liability
Sovereign immunity
Vicarious liability
Question 5
CORRECT ANSWER: E
Vicarious liability is, by definition, one person being held
liable for the acts of another
By: Bill
Problem #1
 Your son and his friends are playing basketball in your





backyard. One of your son’s friends fragrantly fouls another
friend, resulting in a broken arm. The hurt friend incurs
$3,000 in medical bills. Your son’s friend sues you as owner
of the house, but you are not found liable.
A. $0
B. $750
C. $1,000
D. $3,000
E. None of the above
Problem #1 - Answer
 Correct Answer: C. $1,000
 Explanation:
Your son’s friend incurred $3,000 in medical bills.
Therefore, he will receive $1,000 because this is the
maximum amount your medical payments coverage will
pay per person per incident.
Problem #2
 Tired of outrageous winter heating bills you turn off your





heating system and board a plane for Hawaii. Upon your
return home a month later you find the basement flooded
due to pipes that had frozen. It costs $5,000 to fix the
plumbing, $7,000 for new basement carpet, and $5,500 to
replace the basement furniture (ACV $3,500).
A. $0
B. $10,250
C. $10,500
D. $15,250
E. None of the above
Problem #2 - Answer
 Correct Answer: A. $0
 Explanation:
Your plumbing, basement carpet, and basement furniture
are not covered. You turned off the heat in your house,
which contributed to the freezing of your pipes and the
flooding of your basement. Thus, Page 674 #14 applies.
Problem #3
 One day you find you home broken into but all that is





missing is the laptop you use for work. It cost $4,000 to
replace the computer (ACV $3,000) and $2,000 to
reconstruct the client database you had stored on the
computer.
A. $0
B. $2,500
C. $2,750
D. $4,750
E. None of the above
Problem #3 - Answer
 Correct Answer: B. $2,500
 Explanation: Your laptop is covered by personal property,
but the cost to reconstruct the client database is not
covered. Please see Page 668 #8 and Page 669 #8. This is
what the calculation look like.
Personal Property
$3,000 → ACV laptop
- 250 → Deductible
$2,750
↓
$2,500 → Policy limit
Problem #4
 Your son’s hamster escapes from its cage and starts





gnawing at some electrical wiring underneath your
computer. The wires short and start a fire, which
completely destroys you home and everything inside. It
cost $90,000 to rebuild your home. The ACV of your home
was $80,000. It cost $75,000 to replace your personal
property (ACV $55,000). While rebuilding, you rent an
apartment for 8 months at $1,000 a month. It costs $20 for a
new hamster.
A. $138,000
B. $138,020
C. $148,000
D. $152,750
E. None of the above
Problem
#4
Answer
 Correct Answer: C. $148,000
 Explanation:
Your home, personal property, and rent are covered, but your
hamster is not covered. Please see Page 669 # 2. This is what the
calculation looks like.
Personal Property
Dwelling
Loss of Use
$55,000 → ACV property
$90,000 → home
$8,000 → rent
250→ deductible
Total
$54,750
$50,000 → Personal property
↓
+90,000 → Dwelling
$50,000 → policy limit
+ 8,000 → Loss of Use
$148,000 → Total