FCS 3450 Fall 2011 Test #4 Chapters 10-12
True / False Questions
1. The most common method of dealing with risk is to shift, or transfer it to an insurance
company or some other organization. TRUE
2. Liability insurance can be combined under one policy called an umbrella policy. TRUE
3. Replacement cost for settling property insurance claims is less costly than the actual cash
value method. FALSE
4. A home made of wood is more expensive to insure than a comparable brick
structure. TRUE
5. The driver classification category is based on automobile style, model, and value of the
vehicle. FALSE
Multiple Choice Questions
6. Starting a small business that may or may not succeed is an example of ___________ risk.
A. speculative
B. pure
C. commercial
D. personal
E. liability
7. Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring
8. The additional living expenses component of a home insurance policy is designed to:
A. pay for temporary housing while your home is repaired.
B. cover damage to property while away from home.
C. reimburse a homeowner for damage done by a visitor.
D. pay for medical expenses of people injured on your property.
E. pay for repairs caused by fire or other hazards.
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
9. The purpose of a household inventory is to:
A. reduce insurance costs.
B. document owned property.
C. obtain personal property floater coverage.
D. increase liability coverage.
E. lower the chance of negligence.
10. Most home insurance policies provide coverage for:
A. earthquake damage.
B. flood damage.
C. an umbrella liability.
D. personal property floaters.
E. medical payments.
11. (p. 327) Renter's insurance would include coverage for:
A. flood damage.
B. personal property.
C. building and other structures.
D. umbrella liability.
E. earthquake damage.
12. (p. 327) Which one of the following is not covered by renter's insurance?
A. medical expenses for injuries to visitors
B. fire damage to the building's roof
C. additional living expenses
D. accidental damage to the property of others
E. cost of legal action due to personal liability
13. (p. 331) Your home insurance provides for replacement value for personal property losses. A
microwave is stolen. It cost $300 two years ago and has an expected life of six years. A
comparable microwave costs $400 today. What amount will the insurance company pay?
A. $100
B. $150
C. $200
D. $350
E. $400
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
14. (p. 330) Which one of the following insurance policy provisions requires the insured to pay
for part of the loss if the property is not insured for the specified percentage of replacement
value?
A. personal property floater
B. an endorsement
C. coinsurance clause
D. umbrella coverage
E. assigned risk clause
15. (p. 330) The ____________ method to settle claims is based on the current replacement cost
of a damaged or lost item less depreciation.
A. replacement value
B. actual cash value
C. umbrella
D. endorsement
E. personal property floater
16. (p. 331) Your home insurance policy has a $250 deductible and no coinsurance. If a small
fire causes $600 damage to your home, what amount of the claim would the insurance
company pay?
A. $250
B. $350
C. $450
D. $600
E. not able to determine from this information
Payment = $600 - 250 = $350
17. (p. 332) The purpose of financial responsibility laws is to:
A. reduce auto insurance costs.
B. assist poor drivers in getting insurance coverage.
C. protect the public from financial losses due to auto accidents.
D. require uninsured motorists coverage.
E. help drivers with a clean driving record.
18. (p. 334) The 100 in 100/300/50 refers to:
A. property damage liability coverage.
B. the amount of the deductible.
C. collision coverage.
D. the total coverage for an accident
E. the limit for bodily injury claims that can be paid to one person.
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
19. (p. 335) Which of the following is a system in which drivers involved in an accident collect
medical expenses, lost wages, and related injury costs from their own insurance company?
A. assigned risk pool
B. financial responsibility coverage
C. comprehensive system
D. no-fault insurance
E. uninsured motorists protection
20. (p. 335) The 25 in 50/100/25 refers to ____________ coverage.
A. collision
B. bodily injury liability
C. comprehensive physical damage
D. medical payments
E. property damage liability
21. (p. 335) Which one of the following types of coverage would pay for damage to your
automobile in an accident for which you were at fault?
A. property damage liability
B. collision
C. comprehensive physical damage
D. no-fault insurance
E. assigned risk pool coverage
22. (p. 336) Comprehensive coverage would cover financial losses due to:
A. injuries caused by a driver without insurance.
B. damage to your car in an accident for which you were at fault.
C. damage to your car caused by wind or hail.
D. legal action against you for an accident.
E. damage to a neighbor's tree caused by your car.
23. (p. 335) Thad Joslin was judged at fault in an automobile accident. Three others were
awarded damages of $150,000, $75,000, and $75,000. Thad has 100/300 bodily injury
liability coverage. What amount, if any, would not be covered by his insurance?
A. $150,000
B. $100,000
C. $50,000
D. $25,000
E. None. The total amount would be covered by insurance.
Excess individual claim = $150,000 - 100,000 = $50,000. The other claims are less than
$100,000 each and the total claim is less than $300,000.
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
24. (p. 337) Wind damage occurs to your car costing $800 to repair. If you have a $100
deductible for collision and full coverage (no coinsurance) for comprehensive, what portion of
the claim will the insurance company pay?
A. $100
B. $200
C. $500
D. $700
E. $800
25. (p. 317) Nick Rodr owns a home in Edmond, Oklahoma and pays $665 per year in insurance
on the home. The $665 is an example of a:
A. peril.
B. hazard.
C. risk.
D. premium.
E. liability.
26. (p. 318) Kevin Brown rides his bicycle to work so that he doesn't have to worry about getting
in a car accident. How is Kevin managing his risk?
A. avoidance
B. reduction
C. assumption
D. shifting
E. creation
27. (p. 319) Robert Plant pays a premium each month to State Farm Insurance for automobile
insurance on his 2003 Dodge Ram pick-up truck. How is Robert managing his risk?
A. avoidance
B. reduction
C. assumption
D. shifting
E. assessment
28. (p. 332) David Bowers must show a card from his automobile insurance company when he
registers his car in the state of Utah each year. Which of the following types of laws is the
reason he must show this card each year?
A. financial responsibility laws
B. lemon laws
C. Truth in Lending Law
D. Equal Opportunity Law
E. fiscal responsibility laws
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
29. (p. 335) Georgia Owen was in an accident in which her car was totaled. What part of
Georgia's automobile insurance would cover the damage to her car?
A. bodily injury liability
B. medical payments coverage
C. property damage liability
D. collision
E. comprehensive physical damage
30. (p. 338) Which one of the following would be an example of the driver classification
category that determines insurance rates?
A. John Brown has a 2005 Mazda Miata Convertible.
B. Harry Anderson lives in Boca Raton, Florida.
C. Charlie Purciful is 22 years old.
D. Charlotte Webb has her vehicle in a locked garage.
E. Barry Evans has just moved to Raleigh, North Carolina.
31. (p. 318) Personal risks, property risks, and liability risks are types of ________ risk.
A. speculative
B. avoided
C. assumed
D. pure
E. reduced
True / False Questions
32. (p. 354) Group health insurance will cover you but not your immediate family. FALSE
33. (p. 354-355) Very few group health policy contracts have a coordination of benefits
provision. FALSE
34. (p. 356) A deductible provision requires the policyholder to pay a basic amount before the
policy benefits begin. TRUE
35. (p. 356) A coinsurance provision requires the policyholder to share the expenses beyond the
deductible amount. TRUE
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
36. (p. 357) A stop-loss provision requires the policyholder to pay up to a certain amount, after
which the insurance company pays 100 percent of all remaining covered expenses. TRUE
37. (p. 357) Dread disease and cancer policies are usually very good values. FALSE
38. (p. 358) Long-term care insurance was virtually unknown 25 years ago, but now it is
growing faster than any other form of insurance. TRUE
39. (p. 376) Disability income insurance benefits provide regular cash income lost by employees
as the result of an accident or illness. TRUE
40. (p. 376) Most people are more likely to lose their income due to death than due to disability.
FALSE
41. (p. 377) Disability benefits usually begin about one week after the day you file for disability.
FALSE
Multiple Choice Questions
42. (p. 355) Nathanial Drummond has three different insurance policies. He has been injured in
an accident and has incurred $30,000 in medical bills. There is a clause in all of his insurance
contracts that ensures he receives no more than a total of $30,000 in payments from his
insurance companies. What is this clause called?
A. coordination of benefits
B. deductible
C. coinsurance
D. stop-loss provision
E. waiver of premium
43. (p. 356) Each year, Sophie Bennett must pay $500 for doctor's visits before her insurance
company will make any payments for doctor's visits. What is this requirement called?
A. coordination of benefits
B. deductible
C. coinsurance
D. stop-loss provision
E. waiver of premium
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
44. (p. 356) Sophie Bennett is required to pay 20 percent of her medical costs up to a stated
dollar limit. What is this requirement called?
A. coordination of benefits
B. deductible
C. coinsurance
D. stop-loss provision
E. waiver of premium
45. (p. 376) Which type of insurance provides for the partial replacement of income lost by
employees as a result of an accident or illness?
A. comprehensive major medical
B. major medical expense
C. physician's expense
D. disability income
E. surgical expense
46. (p. 377) With disability income insurance, benefits usually begin:
A. on the first day of disability.
B. between 30 and 90 days after the disability occurs.
C. about one week after the day the disability claim is made.
D. one year after the start of the disability.
E. on the 15th day of disability.
47. (p. 357) Renee Crowgy's policy includes a $500 deductible and a coinsurance provision
requiring her to pay 20 percent thereafter. Her medical bills total $5,500. What amount is she
required to pay personally?
A. $1,500
B. $500
C. $1,000
D. $5,000
E. $5,500
Personal liability = $500 + .20 ($5,500 - $500) = $1,500
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
True / False Questions
48. (p. 392) Single persons living alone have little need for life insurance. TRUE
49. (p. 393) The easy method of determining life insurance is based on the rule of thumb that a
"typical family" will need about 70 percent of a wage-earner's salary for seven years. TRUE
50. (p. 393) The DINK (Duel Income No Kids) method of determining life insurance needs
assumes that the spouse will continue to work after husband's/wife's death. TRUE
51. (p. 398) The premium for permanent life policy increases with your age. FALSE
52. (p. 396) Two basic types of life insurance are term and permanent insurance. TRUE
53. (p. 397) Term life insurance premiums decrease as you get older. FALSE
54. (p. 398) One important feature of a term life policy is its cash value. FALSE
55. (p. 404) A beneficiary is a person designated to receive something such as life insurance
proceeds, from the insured. TRUE
Multiple Choice Questions
56. (p. 389) Life insurance premiums are determined basically by the:
A. forces of supply and demand.
B. insurance division of the federal government.
C. forces of competition.
D. use of mortality tables.
E. guesswork of insurance executives.
57. (p. 393) Your annual income is $50,000. What is your life insurance need based on the easy
method?
A. $245,000.
B. $300,000.
C. $345,000.
D. $400,000.
E. $450,000.
Insurance need = $50,000 x .7 x 7 = $245,000
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FCS 3450 Fall 2011 Test #4 Chapters 10-12
58. (p. 393) Which method of determining life insurance requirements is designed specifically
for a working couple with no dependents?
A. hard method
B. easy method
C. "nonworking" spouse method
D. DINK method
59. (p. 393) The total debts of you and your spouse include the following: mortgage, $180,000;
auto loan, $10,000; credit card balance, $2,000; and other debts of $6,000. Further, you
estimate that your funeral will cost $4,000. Your spouse expects to continue to work after
your death. What is your life insurance need using the DINK method?
A. $103,000
B. $106,000
C. $226,000
D. $202,000
E. $99,000
Need = $4,000 + ($180,000 + 10,000 + 2,000)/2] + $6,000 = $106,000
60. (p. 394) Using the "nonworking" spouse method, what should be the life insurance needs for
a family whose youngest child is 7 years old?
A. $50,000
B. $70,000
C. $90,000
D. $110,000
E. $140,000
Need = (18 - 7) x $10,000 = $110,000
61. (p. 392) Who is likely to have the least need for life insurance?
A. married couple, only one spouse working, with three small children
B. single person living with parents
C. married couple with solid jobs and no dependents
D. married working couple with one child
E. single person about to be married
62. (p. 401) A plan that insures a large number of persons under the terms of a single policy
without requiring medical examinations is called a(n) ____________ life insurance policy
plan.
A. individual
B. whole
C. large number
D. permanent
E. group
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