Personal Finance
Fall 2008
Test 4 Chapters 10-12
Chapter 10 Home and Automobile Insurance
True/False Questions
T
F
1. Personal risks, property risks, and liability risks are types of speculative risks.
T
F
2. The most common method of dealing with risk is to shift, or transfer it to an
insurance company or some other organization.
T
F
3. Vicarious liability refers to the failure to take ordinary or reasonable care in a
situation.
T
F
4. Personal belongings that have a high value require coverage with a personal
property floater.
T
F
5. The purpose of a household inventory is to provide evidence of items covered by
home insurance.
T
F
6. Increased liability insurance is available with an umbrella policy.
T
F
7. The Comprehensive Form of homeowner's insurance includes coverage for
damage due to floods.
T
F
8. Replacement cost for settling property insurance claims is less costly than the
actual cash value method.
T
F
9. A home made of wood is more expensive to insure than a comparable brick
structure.
T
F 10. The 100/300 amounts for bodily injury liability insurance refer to the costs of
insurance coverage.
T
F 11. Collision coverage pays for damage to your vehicle for such hazards as fire, theft,
or wind damage.
T
F 12. The driver classification category is based on automobile style, model, and value
of the vehicle.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
Multiple Choice Questions
13. Peril is defined as:
A) the refusal by an insurance company to pay for the covered loss.
B) the cause of risk.
C) the cause of a possible loss.
D) an uncertainty as to loss.
14. Defective house wiring is an example of a:
A) hazard.
B) peril.
C) risk.
D) speculation.
15. Using a home security system is an example of ____________ risk.
A) shifting
B) accepting
C) reducing
D) sharing
E) transferring
16. Wearing a seat belt in an automobile to protect yourself against injury is an example of
____________ risk.
A) reducing
B) assuming
C) pooling
D) shifting
E) avoiding
17. Which of the following would be covered by a home insurance policy?
A) hospital expenses for surgery
B) damage to another person's car when driving
C) accidental injury to a coworker on the job
D) wind damage to your roof
E) theft of business supplies from your office
18. If a homeowner leaves toys on stairs that result in injury to a delivery person, this may be
ruled as:
A) vicarious liability.
B) negligence.
C) assigned risk.
D) umbrella coverage.
E) coinsurance.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
19. While cleaning your home, a worker damages some furniture. You take action against the
worker's employer to cover the cost of the damage. This is an example of a(n)
____________ liability.
A) umbrella
B) assigned
C) common situation
D) peril
E) vicarious
20. 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.
21. Georgette Valentine has expensive photography equipment for use in her hobby. Which
of the following coverages would pay for damage or theft of this equipment?
A) an umbrella policy
B) a household inventory
C) additional living expense coverage
D) a personal property floater
E) a coinsurance floater
22. 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.
23. Most home insurance policies provide coverage for:
A) earthquake damage.
B) flood damage.
C) an umbrella liability.
D) personal property floaters.
E) medical payments.
24. Renter's insurance would include coverage for:
A) flood damage.
B) personal property.
C) building and other structures.
D) umbrella liability.
E) earthquake damage.
3
Personal Finance
Fall 2008
Test 4 Chapters 10-12
25. Which of the following are not covered by renter's insurance?
A) medical expenses for injuries to visitors
B) fire damage of 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
26. 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
27. 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
28. Your home insurance policy has a $250 deductible. 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
29. 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.
30. Which of the following coverages would pay for medical care for people who were
injured in your automobile?
A) medical payments
B) bodily injury liability
C) collision
D) comprehensive
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
31. 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
32. 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) None. The total amount would be covered by insurance
33. Your geographic location is a major factor in determining the ____________ used to
calculate your automobile insurance premiums.
A) driver classification
B) assigned risk pool
C) coverage level
D) legal responsibilities
E) rating territory
34. Which of the following factors is used to determine a person's driver classification?
A) age
B) type and age of vehicle
C) claims in your geographic area
D) insurance company claim processing costs
E) state insurance premium regulations
35. Tara Guest owns a home in Edmond, Oklahoma. She is worried about a tornado causing
damage to her home. The tornado is an example of :
A) A peril
B) A hazard
C) A risk
D) A premium
E) None of the above
36. Carol Greenhill owns a home in Grand Junction, Colorado . She has a coffee maker in
the home that has been recalled because it is likely to start fires. The coffee maker is an
example of:
A) A peril
B) A hazard
C) A risk
D) A premium
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
37. 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) A hazard
C) A risk
D) A premium
E) None of the above
38. 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) Risk Avoidance
B) Risk Reduction
C) Risk Assumption
D) Risk Shifting
E) None of the above
39. Larry Foster has bought a car with front and side airbags and antilock brakes. How is
Larry managing his risk?
A) Risk Avoidance
B) Risk Reduction
C) Risk Assumption
D) Risk Shifting
E) None of the above
40. 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) Risk Avoidance
B) Risk Reduction
C) Risk Assumption
D) Risk Shifting
E) None of the above
41. William Bennett owns a home in Oviedo, Florida. There was a fire in his home and he
and his family had to move to a motel until his home could be fixed. What part of his
homeowner’s insurance policy would cover the cost of the motel?
A) Buildings and other structures
B) Additional living expenses
C) Personal property
D) Personal liability
E) Specialized coverage
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
42. Brett Johnson owns a home in Yukon, Oklahoma. A babysitter he hires breaks her leg
when she trips over the dog. What part of his homeowner’s insurance would cover this
loss?
A) Buildings and other structures
B) Additional living expenses
C) Personal property
D) Personal liability
E) Specialized coverage
Chapter 11 Health and Disability Insurance
True/False Questions
T
F 43. The United States has the lowest per capita medical expenditures of any
industrialized country in the world.
T
F 44. Most people are more likely to lose their income due to death than due to
disability.
T
F 45. Group health insurance plans comprise more than 85 percent of all health
insurance issued by health and life insurance companies.
T
F 46. Group health insurance will cover you but not your immediate family.
T
F 47. Very few group health policy contracts have a coordination of benefits provision.
T
F 48. Just about every worker is covered by disability income insurance.
T
F 49. A coinsurance provision requires the policyholder to share the expenses beyond
the deductible amount.
T
F 50. Dread disease and cancer policies are usually very good values.
T
F 51. Long-term care insurance was virtually unknown 25 years ago, but now it is
growing faster than any other form of insurance.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
Multiple Choice Questions
52. Which country has the highest per capita medical expenditures of any industrialized
country in the world?
A) Australia
B) Britain
C) Canada
D) Denmark
E) U.S.A.
53. What can you do to reduce your health care costs?
A) Stay well.
B) Gain a little extra weight.
C) Smoke and drink.
D) Live dangerously.
E) Don't seek medical care.
54. Which type of insurance provides for the partial replacement of income lost by
employees as a result of an accident, illness, etc.?
A) Comprehensive major medical
B) major medical expense
C) physician's expense
D) Disability income
E) surgical expense
55. Which type of insurance protects against the large expenses of a serious injury or a long
illness?
A) Disability income
B) major medical expense
C) hospital indemnity
D) physician's expense
E) interim medical
56. Which one of the following provisions requires that the policyholder pay a basic amount
before the policy benefits begin?
A) Coinsurance
B) stop loss
C) Deductible
D) self insurance
E) incontestable
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
57. Dental expense insurance provides reimbursement for:
A) oral examinations.
B) fillings.
C) Extractions.
D) inlays.
E) All of the above provide reimbursement.
58. Which type of health insurance is simply a bad buy?
A) Individual health insurance
B) Group health insurance
C) Dread disease and cancer policy
D) Dental insurance
E) Vision insurance
59. Joe Johnson needs surgery for appendicitis. Which part of his basic insurance coverage
should help pay for this surgery?
A) Hospital Expense Insurance
B) Surgical Expense Insurance
C) Physician Expense Insurance
D) Major Medical Expense Insurance
E) None of the above
60. Sophie Bennett must pay $500 in doctors visits before her insurance company will make
any payments for doctors visits. This is called:
A) Coordination of benefits
B) Deductible
C) Coinsurance
D) Stop-Loss provision
E) Major medical expense insurance
61. Sophie Bennett has met the deductible for her doctor’s visits. However, her insurance
company requires her to pay 20% of all expenses above this deductible amount. This
clause is called:
A) Coordination of benefits
B) Add on expenses
C) Coinsurance
D) Stop-Loss provision
E) Major medical expense insurance
62. Chris Jones has an insurance policy that pays benefits in cash when he is hospitalized.
What type of insurance would this be?
A) Comprehensive Major Medical Insurance
B) Hospital Indemnity Policy
C) Long Term Care Insurance
D) Cancer Insurance Policy
E) None of the above
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
63. Marcia Fuller has an insurance policy that lists that she and her three daughters, ages 6 10
and 12, are covered under this policy. Which provision in her insurance policy defines
this?
A) Eligibility
B) Assigned Benefits
C) Benefit Limits
D) Guaranteed Renewable
E) Exclusions and Limitations
64. Dean Thomas has an insurance policy that cannot be cancelled unless he fails to pay his
premium. What provision in his insurance policy would specify this?
A) Eligibility
B) Assigned Benefits
C) Benefit Limits
D) Guaranteed Renewable
E) Exclusions and Limitations
65. Benjamin Northcutt has an insurance policy that does not cover cosmetic surgery like the
nose job he would like to have. What provision in his insurance policy would specify
this?
A) Eligibility
B) Assigned Benefits
C) Benefit Limits
D) Guaranteed Renewable
E) Exclusions and Limitations
Chapter 12 Life Insurance
True/False Questions
T
F 66. Life insurance proceeds may be used to provide an education or income for
children.
T
F 67. Single persons living alone have little or no need for life insurance.
T
F 68. How much insurance one should carry is an important question for anyone who
owns or intends to buy life insurance.
T
F 69. The easy method of determining life insurance is based on the rule of thumb that a
"typical family" will need about 70 percent of wage-earner's salary for seven
years.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
T
F 70. 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.
T
F 71. The " family need" method of determining life insurance need provides a
thorough estimation of life insurance needs.
T
F 72. Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20
years.
T
F 73. Term life insurance premiums decrease as you get older.
T
F 74. One important feature of term life policy is its cash value.
Multiple Choice Questions
75. Typical examples of uses of life insurance proceeds are:
A) paying off a home mortgage.
B) endowment to children.
C) making charitable bequests.
D) paying estate taxes.
E) All of the above are typical examples.
76. Your first step in determining a life insurance program should be to:
A) consult a local insurance company agent.
B) buy as much life insurance as you can afford.
C) estimate your life insurance requirements.
D) determine your life insurance objectives.
E) evaluate the ratings of the insurance company.
77. Suppose that yours is a typical family. Your annual income is $50,000. Use the easy
method to determine your need for life insurance. Your insurance should be in the
amount of:
A) $245,000.
B) $300,000.
C) $345,000.
D) $400,000.
E) $450,000.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
78. Which method of determining life insurance requirements is best suited for a working
couple with no dependents?
A) hard method
B) easy method
C) "nonworking" spouse method
D) thorough method
E) DINK method
79. 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
80. A financial contract written by an insurance company to provide you with a regular
monthly income for as long as you live is called:
A) whole life insurance.
B) term life insurance.
C) modified life insurance.
D) single-premium insurance.
E) an annuity.
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
False, Page 317
True, Page 317
False, Page 322
True, Page 323
True, Page 323
True, Page 325
False, Page 326
False, Page 329
True, Page 329
False, Page 332
False, Page 333
False, Page 336
C, Page 316
A, Page 316
C, Page 317
A, Page 317
D, page 321
B, Page 322
E, Page 322
A, page 323
D, Page 323
B, Page 323
E, Page 325
B, Page 325
B, Page 325-6
E, Page 329
B, Page 329
B, Page 330
E, Page 332
A, Page 333
E, Page 333
C, Page 332
E, Page 336
A, Page 336
A, Page 316
B, Page 316
D, Page 316
A, Page 317
B, Page 317
D, Page 317
B, Page 323
D, page 323
False, Page 344
False, Page 350
True, Page 349
False, Page 349
False, Page 350
False, Page 351
True, Page 356
False, Page 357
True, Page 357
E, Page 344
A, Page 347
D, Page 351
B, Page 356
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Personal Finance
Fall 2008
Test 4 Chapters 10-12
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
C, Page 356
E, Page 357
C, Page 357
B, Page 356
B, Page 356
C, Page 356
B, Page 357
A, Page 361
D, Page 361
E, Page 361
True, Page 383
True, Page 386
True, Page 386
True, Page 387
True, Page 387
True, Page 388
True, Page 389
False, Page 390
False, Page 391
E, Page 383
D, Page 386
A, Page 387
E, Page 387
D, Page 387
E, Page 407
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