Fin 230 Review Session
Exam 2
Brian Alvin balvin2@uiuc.edu
Bryan Brooks bbrooks1@uiuc.edu
Brett Engel bengel@uiuc.edu
Amanda Kastle kastle@uiuc.edu
Katie Kimble kkimble2@uiuc.edu
Laura Nemeth lnemeth2@uiuc.edu
Overview



Auto and Health Policy Review
Reduction of Benefits (HW #7)
Life Insurance





Types (HW #7)
Benefits (HW #8)
Cost Comparisons (HW #9)
Liability Exposures (HW #9)
Homeowners Insurance (HW #10)
Auto Review
Auto Review
Your daughter lives with you and has her own car. Since
her insurance premiums have increased substantially,
she decides to cancel her car insurance on October
10, 2006, but she doesn’t tell you this. You borrow her
car on October 20,2006. While driving her car, you run
into a tree, injuring yourself and her car. Your medical
bills are $30,000. It costs $10,400 to repair your
daughter’s car; the Actual Cash Value of her car before
the accident was $9,000.
A.
B.
C.
D.
E.
$0
$33,900
$35,300
$38,900
None of the above
Auto Review
Your daughter lives with you and has her own car. Since
her insurance premiums have increased substantially,
she decides to cancel her car insurance on October
10, 2006, but she doesn’t tell you this. You borrow her
car on October 20,2006. While driving her car, you run
into a tree, injuring yourself and her car. Your medical
bills are $30,000. It costs $10,400 to repair your
daughter’s car; the Actual Cash Value of her car before
the accident was $9,000.
A.
B.
C.
D.
E.
$0
$33,900
$35,300
$38,900
None of the above
Auto Review
You borrow your neighbor’s car, which is covered under
a policy with Fireman’s Fund with the same
coverages and limits you have on your car. You lose
control of the car and hit a pedestrian. The
pedestrian sues you and wins a bodily injury award
of $250,000.
A.
$0
B.
$25,000
C.
$100,000
D.
$150,000
E.
None of the above
Auto Review
You borrow your neighbor’s car, which is covered under
a policy with Fireman’s Fund with the same
coverages and limits you have on your car. You lose
control of the car and hit a pedestrian. The
pedestrian sues you and wins a bodily injury award
of $250,000.
A.
$0
B.
$25,000
C.
$100,000
D.
$150,000
E.
None of the above
Auto Review
While on a two week vacation in Los Angeles, you rent a
car. You decline the insurance coverage offered by
the rental agency. On the last day of your vacation,
you run into a low hanging branch, breaking the front
windshield and damaging the hood. It costs $600 to
replace the windshield and $1,500 to repair the
hood. The rental agency holds you responsible for
the loss.
A.
$0
B.
$600
C.
$2,000
D.
$2,100
E.
None of the above
**Answer in the lectures notes for non-owned cars**
Auto Review
While on a two week vacation in Los Angeles, you rent a
car. You decline the insurance coverage offered by
the rental agency. On the last day of your vacation,
you run into a low hanging branch, breaking the front
windshield and damaging the hood. It costs $600 to
replace the windshield and $1,500 to repair the
hood. The rental agency holds you responsible for
the loss.
A.
$0
B.
$600
C.
$2,000
D.
$2,100
E.
None of the above
**Answer in the lectures notes for non-owned cars**
Health Policy Review
Health Policy Review
While hiking in the mountains of Colorado, you trip and
knock yourself unconscious. An air ambulance
flies you to the nearest hospital emergency room.
The doctor does an X-ray and CT scan on you,
and finds out that you are able to go home to
recuperate. You are billed $2,000 for air
ambulance, $750 for the CT scan, $200 for the xrays and $300 for the treatment in the emergency
room.
A.
B.
C.
D.
E.
$0
$1,090
$1,840
$2,000
None of the above
Health Policy Review
While hiking in the mountains of Colorado, you trip and
knock yourself unconscious. An air ambulance
flies you to the nearest hospital emergency room.
The doctor does an X-ray and CT scan on you,
and finds out that you are able to go home to
recuperate. You are billed $2,000 for air
ambulance, $750 for the CT scan, $200 for the xrays and $300 for the treatment in the emergency
room.
A.
B.
C.
D.
E.
$0
$1,090
$1,840
$2,000
None of the above
Health Policy Review
You failed your goal-setting project for Fin 230 and
realize that everyone else got A’s. You are really
depressed and want to snap out of your
depression. You see a psychiatrist 2 times each
week for a year. Each session with your
psychiatrist costs you $90/visit
A.
B.
C.
D.
E.
$0
$1,575
$4,680
$7,488
None of the above
Health Policy Review
You failed your goal-setting project for Fin 230 and
realize that everyone else got A’s. You are really
depressed and want to snap out of your
depression. You see a psychiatrist 2 times each
week for a year. Each session with your
psychiatrist costs you $90/visit
A.
B.
C.
D.
E.
$0
$1,575
$4,680
$7,488
None of the above
Health Policy Review
After you have been waiting for 4 years for a new
kidney, doctors finally find one. You are charged
$500 a day for the hospital room, $30,000 for the
operating room, $45,000 in drugs & supplies. The
surgeon charges you $100,000 and the assistant
surgeon charges you $50,000. You stay in the
hospital for 25 days.
A.
B.
C.
D.
E.
$0
$177,900
$185,400
$187,500
None of the above
Health Policy Review
After you have been waiting for 4 years for a new
kidney, doctors finally find one. You are charged
$500 a day for the hospital room, $30,000 for the
operating room, $45,000 in drugs & supplies. The
surgeon charges you $100,000 and the assistant
surgeon charges you $50,000. You stay in the
hospital for 25 days.
A.
B.
C.
D.
E.
$0
$177,900
$185,400
$187,500
None of the above ($205,400)
HW #7
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
HW #8
If an individual wants no uncertainty in an
insurance policy, which type of life
insurance would he or she be most
comfortable with?
A.
Variable Life
B.
Universal Life
C. Whole Life
D. Variable Universal
E.
Re-entry Term
If an individual wants no uncertainty in an
insurance policy, which type of life
insurance would he or she be most
comfortable with?
A.
Variable Life
B.
Universal Life
C. Whole Life
D. Variable Universal
E.
Re-entry Term
John surrenders the policy on August 1, 2003
and selects the paid up insurance option. If
he dies in a fire on August 15, 2019, how
much will his wife Jane receive from the
insurance company?
A.
$0
B.
$8,528
C. $30,500
D. $100,000
E.
None of the above
John surrenders the policy on August 1, 2003
and selects the paid up insurance option. If
he dies in a fire on August 15, 2019, how
much will his wife Jane receive from the
insurance company?
A.
$0
B.
$8,528
C. $30,500
D. $100,000
E.
None of the above
John Doe pays his first five premiums on time,
but then he gets amnesia and forgets to pay
the rest of the premiums. If John dies on
October 31, 2010, how much will his wife
Jane receive from the insurance company?
A.
$0
B.
$4,588
C. $18,700
D. $100,000
E.
None of the above
John Doe pays his first five premiums on time,
but then he gets amnesia and forgets to pay
the rest of the premiums. If John dies on
October 31, 2010, how much will his wife
Jane receive from the insurance company?
A.
$0
B.
$4,588
C. $18,700
D. $100,000
E.
None of the above
John dies on August 7, 2046 from old age. His
wife Jane with an adjusted age of 85 elects
to receive joint and survivor life income with
her son, Tom, who has an adjusted age of
60. What is the minimum monthly benefit
they will receive?
A.
$0
B.
$4.40
C. $440
D. $480
E.
None of the above
John dies on August 7, 2046 from old age. His
wife Jane with an adjusted age of 85 elects
to receive joint and survivor life income with
her son, Tom, who has an adjusted age of
60. What is the minimum monthly benefit
they will receive?
A.
$0
B.
$4.40
C. $440
D. $480
E.
None of the above
If John Doe had lied on the policy application
about his health, but the insurance
company did not find out about the lie until
John’s death on August 1, 2005, how much
would Jane receive as a benefit?
A.
$0
B.
$11,411
C. $15,330
D. $100,000
E.
None of the above
If John Doe had lied on the policy application
about his health, but the insurance
company did not find out about the lie until
John’s death on August 1, 2005, how much
would Jane receive as a benefit?
A.
$0
B.
$11,411
C. $15,330
D. $100,000
E.
None of the above
HW #9
Life Insurance Cost Comparisons
Use the following information for the next 5
questions about a Whole Life policy
Face amount
$275,000
Annual Premium
$3,700
Dividends
In year 20
$3,575
First 20 years total
$19,500
Cash Values
End of 19th year
$74,000
End of 20th year
$81,000
Accumulated Value of Dividends at
The end of 20 years at 7.25%
$48,250

Traditional Net Cost
What is the 20 year traditional net cost
index per $1,000 of coverage?
A.
B.
C.
D.
E.
-7.64
-4.82
-3.55
1.14
None of the above
Traditional Net Cost
What is the 20 year traditional net cost
index per $1,000 of coverage?
A.
B.
C.
D.
E.
-7.64
-4.82
-3.55
1.14
None of the above
Interest Adjusted Surrender Cost
What is the 20 year interest adjusted surrender
cost index per $1,000 of coverage based on a
7.25% interest rate?
A.
B.
C.
D.
E.
2.09
3.05
3.61
6.76
None of the above
Interest Adjusted Surrender Cost
What is the 20 year interest adjusted surrender
cost index per $1,000 of coverage based on a
7.25% interest rate?
A.
B.
C.
D.
E.
2.09
3.05
3.61
6.76
None of the above
Interest Adjusted Net Payment Cost
What is the 20 year interest adjusted net payment
cost index per $1,000 of coverage based on a
7.25% interest rate?
A.
B.
C.
D.
E.
6.47
9.57
11.89
12.65
None of the above
Interest Adjusted Net Payment Cost
What is the 20 year interest adjusted net payment
cost index per $1,000 of coverage based on a
7.25% interest rate?
A.
B.
C.
D.
E.
6.47
9.57
11.89
12.65
None of the above
Interest Adjusted Net Payment Cost
What is the 20 year equivalent annual dividend per
$1,000 of coverage based on a 7.25% interest rate?
A.
B.
C.
D.
E.
1.57
5.88
10.68
13.45
None of the above
Interest Adjusted Net Payment Cost
What is the 20 year equivalent annual dividend per
$1,000 of coverage based on a 7.25% interest rate?
A.
B.
C.
D.
E.
1.57
5.88
10.68
13.45
None of the above (3.88)
Yearly Rate of Return
What is the yearly rate of return for the 20th policy year
if the annual renewable term rate for this individual is
1.65 per 1,000?
A.
B.
C.
D.
E.
0.2%
4.7%
9.3%
30.2%
None of the above
Yearly Rate of Return
What is the yearly rate of return for the 20th policy year
if the annual renewable term rate for this individual is
1.65 per 1,000?
A.
B.
C.
D.
E.
0.2%
4.7%
9.3%
30.2%
None of the above
HW #10
For the following questions, assume that you have
both the Homeowners Policy described in Appendix
A of your textbook and the State Farm Car Policy,
including the Declarations page, handed out in class.
For the Homeowners Policy, assume the policy limits
exceed 80% of the replacement cost of the house.
Also, use the following information as a sample
Declarations page for the Homeowners Policy.
Type of Coverage
Cov A – Dwelling
Cov B – Other Structure
Cov C – Personal Property
Cov D – Loss of Use
Cov E – Personal Liability
(per occurrence)
Cov F – Medical Payments
(per person)
Limits of Liability
$100,000
10% of Cov A limit
$50,000
Actual Loss Sustained
$100,000
$1,000
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall and
then lands on your antique clock destroying it. It
costs $1500 to replace the clock (ACV $1000) and
$300 to repair the wall.
A. 0
D. $1,550
B. $50
E. None of the above
C. $1,050
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall and
then lands on your antique clock destroying it. It
costs $1500 to replace the clock (ACV $1000) and
$300 to repair the wall.
A. 0
D. $1,550
B. $50
E. None of the above
C. $1,050
While you are sitting at home an earthquake hits your
town. It destroys your house, which had a replacement
cost of $100,000, your personal property, which had a
replacement cost of $50,000 and an ACV of $40,000, and
your car, which had an ACV of $15,000. You are also
injured and go to the emergency room for treatment.
You are billed $200 for the visit.
A. 0
D. $154,750
B. $15,000
E. None of the above
C. $15,200
While you are sitting at home an earthquake hits your
town. It destroys your house, which had a replacement
cost of $100,000, your personal property, which had a
replacement cost of $50,000 and an ACV of $40,000, and
your car, which had an ACV of $15,000. You are also
injured and go to the emergency room for treatment.
You are billed $200 for the visit.
A. 0
D. $154,750
B. $15,000
E. None of the above
C. $15,200
While you are out of your house, a burglar breaks down a
door and steals your television set and your watch. The
TV has a replacement value of $800 and an Actual Cash
Value of $500. Your watch has a replacement value of
$2500 and an Actual Cash Value of $1500. It costs $500
to repair the door.
A. $1,750
D. $2,300
B. $2,000
E. None of the above
C. $2,250
While you are out of your house, a burglar breaks down a
door and steals your television set and your watch. The
TV has a replacement value of $800 and an Actual Cash
Value of $500. Your watch has a replacement value of
$2500 and an Actual Cash Value of $1500. It costs $500
to repair the door.
A. $1,750
D. $2,300
B. $2,000
E. None of the above
C. $2,250
Your neighbor was over in your yard enjoying a backyard
fire you had started. Your neighbor started running
around to get away from a wasp, when he falls into the
fire, burning himself. He incurs $15,000 in medical bills.
He sues you, but you are not held liable for his injuries.
A. $0
D. $15,000
B. $750
E. None of the above
C. $1,000
Your neighbor was over in your yard enjoying a backyard fire you
had started. Your neighbor started running around to get away
from a wasp, when he falls into the fire, burning himself. He
incurs $15,000 in medical bills. He sues you, but you are not held
liable for his injuries.
A. $0
D. $15,000
B. $750
E. None of the above
C. $1,000
You fall asleep while smoking in bed, and wake up on
fire. Although you escape, your house burns to the
ground. The replacement cost of your house is $120,000,
the ACV is $90,000. The replacement cost of your
personal property is $60,000, the ACV is $40,000. You
incur $30,000 in medical bills for skin grafts.
A. $0
D. $165,000
B. $129,750
E. None of the above
C. $139,750
You fall asleep while smoking in bed, and wake up on
fire. Although you escape, your house burns to the
ground. The replacement cost of your house is $120,000,
the ACV is $90,000. The replacement cost of your
personal property is $60,000, the ACV is $40,000. You
incur $30,000 in medical bills for skin grafts.
A. $0
D. $165,000
B. $129,750
E. None of the above
C. $139,750