Family and consumer Studies
1. Negotiating a purchase price for a home usually involves an offer and counteroffers.
TRUE
2. The amount of the down payment will affect the amount of mortgage a person can
afford. TRUE
3. Prepaid interest may be a part of a mortgage agreement. TRUE
4. When paying a point toward your mortgage it means you are paying 1% of the value
of the home. FALSE
5. The largest physical capital investment made by most families is a house. TRUE
6. The percentage of families owning homes over time has decreased. FALSE
7. The definition of a rate cap is how often the lending institution can change the ARM
interest rate. FALSE
8. Current interest rates can affect the total price of a home. TRUE
9. An appraisal refers to the price for which a home has been sold. FALSE
10. Amortization refers to changes in the monthly payment for a variable rate mortgage.
FALSE
11. Although a borrower pays more interest on a 30-year mortgage than on a 15-year
mortgage due to the length of the loan, the 30-year APR is generally lower than a 15year mortgage APR. FALSE
12. An advantage of fixed rate mortgages is that the tax advantage lessens over time.
FALSE
13. Alternative mortgage instruments were created because there were too many homes
on the market. FALSE
14. With Adjustable Rate Mortgages the interest rate is variable but the payment stays
fixed. FALSE
15. Interest only loans increase a buyer’s equity in the home faster than conventional
loans. FALSE
16. Installment credit allows the borrower to use the credit repeatedly. FALSE
17. The most important part of your FICO score is the type of credit you use FALSE
18. Your financial institution can discriminate based on your credit score. TRUE
19. If you find an error on your credit report you should call the credit bureau within 30
days to get it corrected. FALSE
20. The majority of college students do not have a credit card. FALSE
21. Bankruptcy stays on your credit history for 12 years. FALSE
22. Your FICO score has little impact on interest rates you pay. FALSE
23. The three credit bureaus have the same information for each creditor. FALSE
24. If you have a short credit history there is no need to get annual credit reports.
FALSE
25. You can receive three credit reports each year. TRUE
26. Budgeting is very simple. TRUE
27. The benefits associated with purchasing a home include:
A. Tax benefit
B. Appreciation
C. Forced savings
D. Reduction in risk of future housing costs
E. All of the above
28. The purpose of a counteroffer is to:
A. negotiate the purchase price.
B. reduce mortgage payments.
C. lower real estate property taxes.
D. avoid paying points at closing.
E. avoid paying the real estate agent's commission.
29. Earnest money has the purpose of:
A. paying real estate property taxes.
B. reducing the mortgage interest rate.
C. serving as good faith by a homebuyer.
D. paying the real estate agent's commission.
E. being a mortgage application fee.
30. What is prepaid interest charged by a mortgage company?
A. escrow
B. points
C. origination fee
D. title fee
E. deed
31. Earnest money is:
A. The value of your home used to calculate property taxes
B. The estimated current value of your home in the market
C. The price you pay for your home
D. The amount of money the buyer deposits when they make an offer on a home
E. The cost of home insurance
32. The change in credit card rules will:
A. Limit how often a consumer can use a credit card.
B. Increase the grace period on credit cards.
C. Prevent the user from going over the card limit without authorization.
D. Require credit companies use variable rate interest instead of fixed rate.
E. Change the color of all BYU credit cards to red and white.
33. The least expensive institution to get credit through in the list below is:
A.
Sales Finance Companies
B.
Credit Cards
C.
Pawnshops
D.
Banks, Savings and Loans, Credit Unions
E.
Consumer Finance Companies
34. Consumers will usually obtain the best overall value of their dollar by having all
financial services with the same institution. FALSE
35. Savers should always attempt to obtain an interest rate that is less than the inflation
rate. FALSE
36. A certificate of deposit is usually considered to be very liquid. FALSE
37. The more frequent the compounding, the less a person will earn on a savings account.
FALSE
38. Joan Zemke expects interest rates to decline over the next few months. To maximize
her earnings she should use a(n):
A. regular savings account.
B. interest-bearing checking account.
C. five-year certificate of deposit.
D. six-month certificate of deposit.
E. money market fund
39. The purpose of a debit card is to:
A. obtain a discount on consumer purchases.
B. make credit card purchases.
C. quickly obtain a cash loan.
D. make investments with an investment company.
E. transfer money electronically
40. What is the difference between a lost debit card and a lost credit card?
A. A credit card carries more risk of loss to the cardholder.
B. A debit card carries more risk of loss to the cardholder.
C. There is no cardholder liability if either type of card is lost.
D. There is no difference in liability
41. A savings account at a credit union is called a ____________ account.
A. share
B. NOW
C. club
D. certificate
E. money market
42. A certificate of deposit usually has:
A. high interest-rate risk.
B. low safety for savers.
C. limited liquidity.
D. a variable rate of return.
E. no minimum deposit amount
43. Savings compounded ____________ would have the highest effective yield.
A. daily
B. annually
C. semi-annually
D. monthly
E. weekly
44. An account at a commercial bank designed for people who want to earn a higher
savings rate is a(n) ____________ account.
A. regular savings account
B. regular checking
C. share draft
D. money market account
45. What type of account would be considered the most liquid?
A. A certificate of deposit.
B. A checking account
C. A money market account
D. A brokerage account
46. A pawnshop with a monthly interest rate of 2.75 percent would have an annual
interest rate of ____ percent.
A. 33
B. 27.5
C. 20
D. 5.5
E. 2.75
47. A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the
after-tax savings rate of return would be ____ percent.
A. 28
B. 16.72
C. 4
D. 2.88
E. 1.12
48. Credit is an arrangement to receive cash, goods, or services now and pay for them in
the future. TRUE
49. There are very few valid reasons for using credit. FALSE
50. Although credit allows more immediate satisfactory of needs and desires, it does not
increase total purchasing power. TRUE
51. With an open-end credit, you pay back one-time loans in a specified period of time in
equal amounts. FALSE
52. You should sign your new credit cards as soon as they arrive. TRUE
53. Gasoline companies are good places to obtain your first credit card. TRUE
54. When you cosign a loan, you are being asked to guarantee this debt. TRUE
55. Most of the information in your credit file may be reported for only seven years. If
you have declared personal bankruptcy, that fact may be reported for 10
years. TRUE
56. Which of the following agencies can produce for a subscribing creditor, almost
instantaneously, a report about your past and present credit activity?
A. the Federal Reserve Bank in your district
B. the Audit Bureau of Circulation
C. Federal Trade Commission
D. Debit Bureau
E. Credit Bureau
57. A valuable asset pledged to assure loan payments and subject to seizure upon default
is called:
A. capacity.
B. character.
C. capital.
D. collateral.
E. conditions.
58. The way to maintain your credit rating is to:
A. use credit sparingly.
B. pay cash for your purchases.
C. repay your debts on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.
59. Paul Carter is applying for a loan from a bank. The bank is concerned because Paul is
an airline pilot for United Airlines. The bank thinks that Paul may be laid off in the
near future. Which of the 5Cs of credit is the bank concerned with?
A. Character
B. Capacity
C. Capital
D. Collateral
E. Conditions
60. Charles Rickman is applying for a loan from the bank. The bank has determined that
he has never been late making payments on past loans. Which of the 5Cs of credit is
the bank looking at?
A. Character
B. Capacity
C. Capital
D. Collateral
E. Conditions
1. The biggest distinction between savings and investing is the yield (return)? True
2. Once you begin investing you can discontinue your savings plan. False
3. Preferred stock is often referred to as a middle investment somewhere between
common stock (an ownership position for the stockholder) and corporate bonds (a
creditor position for the bondholder). True
4. By using the Internet, it is possible to find market price quotations, but more
detailed financial information about a corporation is unavailable to the average
investor. False
5. Today, there are more closed-end funds than there are open-end funds. False
6. If an investor owns cumulative preferred stock, missed or omitted dividends
accumulate and must be paid before any cash dividend is paid to common
stockholders. True
7. Pure risk means you can either make or lose money. False
8. Dollar cost averaging means buying the same number of stock each time you
invest. False.
9. There is no difference between diversification and allocation. False
10. Beta measures the probability that a stock will make money. False
11. Risk and average rate of return are positively correlated. True
12. Municipal bonds are federal tax-free. True
13. In inflationary times the demand for precious metals rises. True
14. Mutual fund’s net asset value is usually calculated and posted throughout the
trading day. False
15. In case of a divorce, division of pension benefits generally depends on the length
of the marriage. True
16. If you make a withdrawal from a 401(k) or 403(b) you must pay taxes due plus a
10% penalty. True
17. The use of economic resources to make a profit is the definition of:
a. Saving
b. Investing
c. Diversification
d. Allocation
18. An example of investing by lending is:
a. Owning stocks
b. Owning real estate
c. Owning bonds
d. Leveraging someone else’s money
19. An example of investing by owning is:
a. Owning stocks
b. Owning bonds
c. Leveraging someone else’s money
20. An example of investing by lending is:
a. Owning stocks
b. Owning bonds
c. Leveraging someone else’s money
21. Cindy Scymanski purchased 100 shares of Gleason Systems stock for $42.50 per
share. Her commission for this purchase was $35. She sold the stock two years
later for $55 per share and a commission of $50. While she held the stock it paid a
dividend of $1.50 per share. What was Beverly's total dollar return on this stock?
A. $1,250
B. $1,165
C. $150
D. $1,315
E. $1,400
22. Patty Hoskins owns 220 shares of General Mills Corporation. For the last
calendar quarter, General Mills Corporation paid a dividend of $0.47 a share.
What is the total amount she received in her dividend check for this quarter?
A. $0.47
B. $47
C. $94
D. $103.40
E. It is impossible to calculate the total dividend amount with this information.
23. Jo Bower owns 150 shares of Data General stock. She purchased the stock for $24
a share. She sold her stock for $30 a share. The commissions required to buy and
sell her stock totaled $120. Assuming that she received no dividends during the
time she owned the stock, what is her total return for this transaction?
A. $600
B. $780
C. $900
D. $2,400
E. $3,000
24. A stock that remains stable during declines in the economy is called a(n)
____________ stock.
A. defensive
B. cyclical
C. growth
D. income
E. blue-chip
25. The value of the mutual fund's portfolio minus the mutual fund's liabilities
divided by the number of shares outstanding is called the:
A. book value.
B. outstanding balance.
C. per share value.
D. net asset value.
E. accounting value.
26. Assume you invest $3,000 in a mutual fund. Also assume the mutual fund pays
you $50 dividends this year and that the mutual fun is worth $3,275 at the end of
the year. What is your rate of return?
a. 8.4%
b. 9.9%
c. 10.8%
d. 0%
27. A fee that some investment companies charge for advertising and marketing a
mutual fund is called a:
A. 14A-1 fee.
B. 12b-1 fee.
C. 18-2 fee.
D. 21-AB fee.
E. None of these answers are correct.
28. Earnings from a Roth IRA may be withdrawn after the account is 5 years old and:
a. After the investor is 50 years old.
b. For the down payment on a secondary home.
c. For higher education expenses for yourself, spouse, children or
grandchildren.
d. If you want to donate to a charity.
e. All of the above
29. An investor can borrow from his/her 401(k) or 403(b) with the following
restrictions:
a. The interest must be repaid.
b. If you change jobs you must pay the repay the loan immediately.
c. If you default you must pay taxes due plus 10% penalty.
d. All of the above
30. In Utah, if property transfer is not specified, the law assumes
a. Joint tenancy with rights of survivorship
b. Tenancy in common
c. Joint tenancy with rights in common
d. Every person for him/herself
31. Financial goals should be specific and measurable? True
32. There is no difference between saving and investing? False
33. You can usually receive a higher yield on a savings account than an investment
account? False
34. The biggest distinction between savings and investing is the yield (return)? True
35. Once you begin investing you can discontinue your savings plan. False
36. At maturity , corporations must repay stockholders the money they invested in the
company. FALSE
37. Dividend payments on common stock are guaranteed, but the amount is
determined by the board of directors. False
38. Preferred stock is often referred to as a middle investment somewhere between
common stock (an ownership position for the stockholder) and corporate bonds (a
creditor position for the bondholder). True
39. As the risk taken by an investor goes up the return on that investment ought to go
up? True
40. A defensive stock is a stock that typically sells for less than $1. False
41. By using the Internet, it is possible to find market price quotations, but more
detailed financial information about a corporation is unavailable to the average
investor. False
42. The major reasons why investors purchase mutual funds are professional
management and diversification. True
43. Today, there are more closed-end funds than there are open-end funds. False
44. In a newspaper quotation, NAV stands for "not accessible value." False
45. If an investor owns cumulative preferred stock, missed or omitted dividends
accumulate and must be paid before any cash dividend is paid to common
stockholders. True
46. Pure risk means you can either make or lose money. False
47. One way to reduce the amount of risk an investor takes is to diversify. True
48. Dollar cost averaging means buying the same number of stock each time you
invest. False.
49. There is no difference between diversification and allocation. False
50. Beta measures the probability that a stock will make money. False
51. A bond rating has to do with the default risk of a bond. True
52. Risk and average rate of return are positively correlated. True
53. One of the disadvantages of investing in federal government securities is they are
high risk. False
54. Municipal bonds are federal tax-free. True
55. The main reason why investors choose U.S. government securities is the above
average interest rates that these securities pay. False
56. CDs have no liquidity risk. False
57. There is no difference between common and preferred stocks except the risk
factor. False
58. A bull market is a time when prices are rising. True
59. A bear market is a time when prices are rising. False
60. Mutual funds disadvantage is they usually are not very diversified. False
61. Open ended mutual funds are the most common. True
62. Mutual fund’s net asset value is usually calculated and posted throughout the
trading day. False
63. An investment paying 7% is always a better investment than one paying 6.5%.
False
64. In most cases a traditional IRA is a better investment for a student than a Roth
IRA. False
65. Most IRAs restrict investors by only offering few investment options. False
66. Full retirement age is 65 years old. False
67. One of the misconceptions about retirement is that your expenses will drop when
you retire. True
68. In case of a divorce, division of pension benefits generally depends on the length
of the marriage. True
69. Although medical expenses vary from person to person, they tend to decrease
with age. False
70. If you make a withdrawal from a 401(k) or 403(b) you must pay taxes due plus a
10% penalty. True
71. Having an estate going to probate is usually the best idea for most families. False
72. Using next year’s income this year is:
a. Saving
b. Investing
c. Borrowing
d. Stupid
73. The use of economic resources to make a profit is the definition of:
a. Saving
b. Investing
c. Diversification
d. Allocation
74. Most people invest to:
a. Achieve financial goals
b. Increase current income
c. Gain wealth and financial security
d. Have funds available for retirement
e. All of the above
75. An example of investing by lending is:
a. Owning stocks
b. Owning real estate
c. Owning bonds
d. Leveraging someone else’s money
76. An example of investing by owning is:
a. Owning stocks
b. Owning bonds
c. Leveraging someone else’s money
77. An example of investing by lending is:
a. Owning stocks
b. Owning bonds
c. Leveraging someone else’s money
78. The type of risk an investor takes of losing a major portion of or all an investment
is:
a. Inflation risk
b. Default risk
c. Interest rate risk
d. Marketability risk
79. Of the following which is the safest investment:
a. CDs
b. Corporate bonds
c. Mutual funds
d. Real estate
80. Of the following which is the riskiest investment:
a. CDs
b. Money market
c. Rental property
d. Corporate bonds
e. Commodities
81. If you invest money for shares of a company what type of investment do you
own?
a. Stocks
b. Bonds
c. Mutual Funds
d. Real Estate
e. CDs
82. Nancy Cammans just bought the stock of a company. She knows that she will
receive a cash payment from the company once a quarter, although the company
is not obligated to make this payment. What will he receive?
A. Equity
B. Proxy
C. Voting Rights
D. Dividends
E. None of the choices
83. Cindy Scymanski purchased 100 shares of Gleason Systems stock for $42.50 per
share. Her commission for this purchase was $35. She sold the stock two years
later for $55 per share and a commission of $50. While she held the stock it paid a
dividend of $1.50 per share. What was Beverly's total dollar return on this stock?
A. $1,250
B. $1,165
C. $150
D. $1,315
E. $1,400
84. Loni Smith owns 220 shares of General Mills Corporation. For the last calendar
quarter, General Mills Corporation paid a dividend of $0.47 a share. What is the
total amount she received in her dividend check for this quarter?
A. $0.47
B. $47
C. $94
D. $103.40
E. It is impossible to calculate the total dividend amount with this information.
85. Jo Bower owns 150 shares of Data General stock. She purchased the stock for $24
a share. She sold her stock for $30 a share. The commissions required to buy and
sell her stock totaled $120. Assuming that she received no dividends during the
time she owned the stock, what is her total return for this transaction?
A. $600
B. $780
C. $900
D. $2,400
E. $3,000
86. A stock that remains stable during declines in the economy is called a(n)
____________ stock.
A. defensive
i.
Cyclical
ii.
Growth
iii.
Income
iv.
blue-chip
87. Assume that you purchased a $1,000 Exxon bond that pays 9.5 percent interest.
What is the amount of interest you would receive each six months?
A. $4.75
B. $9.50
C. $95
D. $47.50
E. $1,000
88. Generally, interest on corporate bonds is paid every:
A. month.
B. three months.
C. six months.
D. nine months.
E. year.
89. An investment in which you loan a corporation, the federal government, or a
municipality money to be paid back in semi-annual interest payments what type
of investment do you own?
a. Stocks
b. Bonds
c. Mutual Funds
d. Real Estate
e. CDs
90. An investment in which money is pooled together and invested by a professional
fund manager is what type of investment?
a. Stocks
b. Bonds
c. Mutual Funds
d. Real Estate
e. CDs
91. The value of the mutual fund's portfolio minus the mutual fund's liabilities
divided by the number of shares outstanding is called the:
A. book value.
B. outstanding balance.
C. per share value.
D. net asset value.
E. accounting value.
92. Assume you invest $3,000 in a mutual fund. Also assume the mutual fund pays
you $50 dividends this year and that the mutual fun is worth $3,275 at the end of
the year. What is your rate of return?
a. 8.4%
b. 9.9%
c. 10.8%
d. 0%
93. A fee that some investment companies charge for advertising and marketing a
mutual fund is called a:
A. 14A-1 fee.
B. 12b-1 fee.
C. 18-2 fee.
D. 21-AB fee.
E. None of these answers are correct.
94. Committing a set amount per month, and always purchasing securities with that
money is an example of:
a. Allocation
b. Diversification
c. Dollar Cost Averaging
d. Buying on Margin
95. A stock that is expected to have higher rates of return (appreciation) and no
dividends is:
a. Value Stock
b. Growth Stock
c. Defensive Stock
d. Index Stock
96. Earnings from a Roth IRA may be withdrawn after the account is 5 years old and:
a. After the investor is 50 years old.
b. For the down payment on a secondary home.
c. For higher education expenses for yourself, spouse, children or
grandchildren.
d. If you want to donate to a charity.
e. All of the above
97. 401(k)s, Roth IRAs, Roth 401(k)s are examples of
a. Tax Deferred Programs
b. Defined Contribution Plans
c. Social Security Retirement Plans
d. Pre-tax Retirement Plans
98. An investor can borrow from his/her 401(k) or 403(b) with the following
restrictions:
a. The interest must be repaid.
b. If you change jobs you must pay the repay the loan immediately.
c. If you default you must pay taxes due plus 10% penalty.
d. All of the above
99. True / False Questions
100.
1. The purpose of insurance is to help protect you and your family against
financial hardship due to hazard, accident, death, and similar risks. TRUE
101.
2. Personal risks, property risks, and liability risks are types of speculative
risks.
FALSE
102.
103.
3. The most common method of dealing with pure risk is to shift, or
transfer it to an insurance company or some other organization. TRUE
104.
4. Self-insurance is the process of establishing a monetary fund that can be
used to cover the cost of a loss. TRUE
105.
5. Homeowner's insurance refers to coverage also available to
renters. TRUE
106.
6. The purpose of a household inventory is to provide evidence of items
covered by home insurance. TRUE
107.
7. Medical payments coverage in a home insurance policy is designed to
pay for legal action taken against a homeowner who may be legally responsible
for injury or property damage of others. FALSE
108.
109.
8. Replacement cost for settling property insurance claims is less costly
than the actual cash value method. FALSE
110.
111.
9. Collision coverage pays for damage to your vehicle for such hazards as
fire, theft, or wind damage. FALSE
112.
113.
10. Property damage liability coverage would pay for damage to another
vehicle for which you were at fault. TRUE 11. The driver classification
category is based on automobile style, model, and value of the vehicle. FALSE
114.
115.
116.
117.
Multiple Choice Questions
118.
12. Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring
119.
120.
13. 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.
121.
122.
14. Renter's insurance would include coverage for:
A. flood damage.
B. personal property.
C. building and other structures.
D. umbrella liability.
E. earthquake damage.
123.
124.
15. Which of the following are 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
125.
126.
16. 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
127.
17. Which of the following insurance policy provisions requires that the
insured must pay for part of the loss of a claim 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
128.
18. 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
129.
19. 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
E. not able to determine from this information
130.
20. 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.
131.
21. Henry Edwards was injured in an accident caused by another driver
who did not have insurance. Henry's medical expenses would be covered by:
A. medical payments.
B. collision.
C. bodily injury liability.
D. uninsured motorists protection.
E. no-fault coverage.
132.
133.
. 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
134.
135.
23. 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
136.
137.
24. Which 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
138.
139.
25. 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 with your car.
140.
141.
26. Thad Joslin was judged at fault in an automobile accident. Three
others were awarded damages of $150,000, $75,000, and $75,000 due to injuries.
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
142.
143.
27. Which of the following refers to a category based on age, sex, marital
status, and driving habits that is used to set automobile insurance premiums?
A. rating territory
B. assigned risk pool
C. no-fault system
D. driver classification
144.
. 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. A liability
145.
146.
29. 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. Risk Creation
147.
148.
30. 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. Risk Development
149.
150.
31. Peter Jacobs has set aside $5000 in case he has an accident in his 1980
Honda Civic. He does not have collision insurance on this car. How is Peter
managing his risk?
A. Risk Avoidance
B. Risk Reduction
C. Risk Assumption
D. Risk Shifting
E. Risk Creation
151.
152.
32. 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. Risk Assessment
153.
154.
155.
33. The 500 in 200/500/50 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 in total.
156. True / False Questions
157.
34 The best way to avoid the high cost of illness is to stay well. TRUE
158.
35 Group health insurance plans comprise the majority of all health
insurance issued by health and life insurance companies. TRUE
159.
36 Very few group health policy contracts have a coordination of benefits
provision.
FALSE
160.
37 A stop-loss provision (out of pocket maximum) requires the
policyholder to pay up to a certain amount, after which the insurance company
pays 100 percent of all remaining covered expenses. TRUE
161.
38. Dread disease and cancer policies are usually very good
values. FALSE
162.
Multiple Choice Questions
163.
164.
39. 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 the makes sure that he receives no more
than $30,000 in payments from his insurance companies. This clause is called:
A. Coordination of benefits
B. Deductible
C. Coinsurance
D. Stop-Loss provisions
E. Major medical expense insurance
165.
166.
40. Sophie Bennett must pay $500 in doctor's 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
167.
41. 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
168.
169.
42. Sophie Bennett has met the deductible for her doctor's visits. She has
also paid out 20% of all expenses above this deductible amount. She has paid a
total of $5000 in doctor's visits. At this point there is a clause in her insurance
contract that make her insurance company pay for 100% of all expenses. What
clause is this likely to be?
A. Coordination of benefits
B. Add on expenses
C. Coinsurance
D. Stop-Loss provision
E. Major medical expense insurance
170.
43. 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
171.
44. 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
172.
173.
174.
True / False Questions
175.
45. Most people buy life insurance to protect someone who depends on
them from financial losses caused by their death. TRUE
176.
46. Single persons living alone have need for less life insurance than
persons that have dependents. TRUE
177.
47. Households with small children most often have the greatest need for
life insurance.
TRUE
178.
48. 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. TRUE
179.
180.
49. 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
181.
50. The premium for the permanent life policy increases with your age.
FALSE
182.
51. Two basic types of life insurance are temporary and permanent
insurance. TRUE
183.
52. Term life insurance premiums decrease as you get older. FALSE
184.
53. One important feature of term life policy is its cash value. FALSE
185.
54. A beneficiary is a person designated to receive something such as life
insurance proceeds, from the insured. TRUE
186.
Multiple Choice Questions
187.
188.
55. Individuals and families purchase life insurance to:
A. get rich quick
B. fill financial needs created by the loss of the breadwinner
C. defraud the insurance companies
D. keep up with people with a similar financial situation
189.
190.
56. You probably have little or no need for life insurance if you are:
A. a single person living alone or with parents
B. divorced and have two children
C. married and your spouse works
D. gainfully employed
E. a household with several children
191.
57. 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
192.
58. Which method of determining life insurance requirements is suited for
a working couple with no dependents?
A. hard method
B. easy method
C. "nonworking" spouse method
D. thorough method
E. DINK method
193.
59. The method of determining life insurance requirements that does not
ignore such important factors as social security and your liquid assets is called
the:
A. easy method
B. hard method
C. DINK method
D. "nonworking" spouse method
E. "family need" method
194.
60. 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
195.
Negotiating a purchase price for a home usually involves an offer and
counteroffers.
TRUE
196.
The largest physical capital investment made by a family is a house.
TRUE
197.
Current interest rates can affect the price of a home. TRUE
198.
An easy way to decrease the amount you owe on a mortgage is to make
your monthly payment in two semi-monthly payments. TRUE
199.
The majority of US consumers have a delinquent payment on their credit
history. TRUE
200.
The majority of college students do not have a credit card. FALSE
201.
Utah has the highest bankruptcy in the nation. FALSE
202.
Your FICO score has little impact on interest rates you pay. FALSE
203.
The three credit bureaus have the same information for each creditor.
FALSE
204.
If you have a short credit history there is no need to get annual credit
reports. FALSE
205.
Budgeting is very simple. TRUE
206.
The typical down payment on a house is 10%. TRUE
207.
a.
b.
c.
d.
e.
The benefits associated with purchasing a home include:
Tax benefit
Appreciation
Forced savings
Reduction in risk of future housing costs
All of the above
208.
The purpose of a counteroffer is to:
A. negotiate the purchase price.
B. reduce mortgage payments.
C. lower real estate property taxes.
D. avoid paying points at closing.
E. avoid paying the real estate agent's commission.
True / False Questions
1. Overspending is a common cause of financial difficulties. True
2. The first phase in the buying process involves information gathering. True
3.The most consistent quality is usually found with nationally known, brand-name
products. True
4. Store-brand products are usually inferior in quality compared to national and storebrand items. False
5.An implied warranty is usually in written form. False
6. Service contracts are usually included in the cost of appliances and other high-priced
items. False
7.Representation by a lawyer is usually required in small claims court. False
8.A class action suit allows many people with the same complaint to take action as a
group. True9.Unit pricing uses a standard unit of measurement to compare prices of
packages of different sizes. True
10.A limited warranty covers all aspects of the product and does not require the buyer to
incur any of the costs for shipping and repairs. False
Multiple Choice Questions
11. The main purpose of Consumers Union is to:
A. evaluate the quality of products and services.
B. reduce fire hazards of home appliances.
C. handle consumer complaints from government workers.
D. represent the government in consumer complaint hearings.
E. provide environmental information on automobiles.
12.A cooperative is designed to:
A. solve consumer complaints.
B. test consumer products for quality.
C. sell products or services to members at reduced prices.
D. obtain brand-name items for less than wholesale.
E. lobby for changes in consumer protection laws.
13. Cooperatives are commonly organized to sell:
A. service contracts.
B. furniture.
C. auto repair service.
D. food.
E. information processing service.
14. Open dating provides information on:
A. freshness.
B. pricing.
C. nutrition.
D. common product use.
E. government inspection.
15. A 32-ounce package selling for $1.60 would have a unit price of:
A. $1.60.
B. $2.00 a pound.
C. 5¢ an ounce.
D. 80¢ a quart.
E. 12¢ an ounce.
16. The major criticism of service contracts is:
A. poor service from repair companies.
B. limited coverage of repairs.
C. weak government regulation of service contract companies.
D. high costs and a low chance of need.
E. that few places are available for repairs.
17. The purpose of a service contract is to:
A. prevent legal action due to a defective product.
B. protect a product owner from expensive repairs.
C. reduce the chance of repairs of an appliance.
D. obtain regular maintenance on a product.
E. have legal assistance for consumer complaints.
18. ____________ is the settlement of a difference by a third party whose decision is
legally binding.
A. A legal aid society
B. Mediation
C. Arbitration
D. A consumer action panel
E. Cooperative action
19. The purpose of small claims court is to:
A. regulate fair business activities.
B. provide hearing on proposed consumer protection laws.
C. allow consumers with similar complaints to take action as a group.
D. resolve minor consumer complaints.
E. assist low-income consumers who need legal help.
20. Small claims court requires a person to have:
A. written testimony.
B. a case involving less than a set amount.
C. representation by an attorney.
D. evidence screened in advance of the hearing
21. Recently, Jim Dahl was on a bus tour in a mountain area. The bus broke down forcing
the group to stay overnight. Group members had to pay for their own hotel bills. Jim
believes that the hotel cost for the group should be paid by the tour company. Which
legal action would be most appropriate?
A. small claims court
B. mediation
C. legal aid society
D. arbitration
E. class action suit
22. Most cars bought from private parties have:
A. no implied warranties.
B. a 30-day return privilege.
C. a limited warranty.
D. no express warranty.
E. a government-supported repair guarantee.
23. The purpose of the is to:
A. monitor safety problems of existing vehicles.
B. provide price data.
C. reduce sales of stolen vehicles.
D. list cars available for sale from government agencies.
24. Hector Ramirez's car broke down on the way to work and his mechanic has told him
that the car cannot be fixed. Hector drives 30 miles one way to work each day. There is
no reliable bus or train transportation that goes anywhere near his work. Hector decides
he needs a car for reliable transportation to work. What step in the purchasing process is
Hector carrying out?
A. Problem identification
B. Information gathering
C. Evaluating alternatives
D. Determining the purchase price
E. Post purchase activities
25.An online buying club requires an annual fee of $60 in order to qualify for a 15
percent on purchases. What amount would a person have to buy in order to save enough
to cover the cost of the membership?
A. $15
B. $60
C. $165
D. $400
E. $600
True / False Questions
26 Ease of mobility is an advantage of renting. True
27.Current interest rates can affect the price of a home. True
28.Negotiating a purchase price for a home usually involves an offer and counteroffers.
True
Prepaid interest may be a part of a mortgage agreement. True
30. Amortization refers to changes in the monthly payment for a variable rate mortgage.
False
31.Adjustable rate mortgages with a payment cap can result in a situation of negative
amortization. True
32. An escrow account is designed to reduce the cost of a mortgage. False
33.An appraisal refers to the price for which a home has been sold. False
Multiple Choice Questions
34.Renting is more advantageous than buying a home for:
A. lower short-term living costs.
B. financial benefits.
C. long-term investment purposes.
D. receiving tax benefits.
E. permanence of residence.
35.The main financial benefit of renting is:
A. tax deductions.
B. increased equity.
C. investment value growth.
D. lower initial costs.
36.Prefabricated housing refers to:
A. nonprofit ownership.
B. government leasing of living units.
C. rental units available to government employees.
D. ownership available to low-income individuals.
E. housing partially assembled in factories.
37.Lonette and Al received a statement reporting that they paid $8,000 in mortgage
interest during the past year. If they are in a 28 percent tax bracket, this deduction may
reduce their by:
A. $1,000.
B. $2,240.
C. $3,000.
D. $4,000.
E. $8,000.
38.Earnest money has the purpose of:
A. paying real estate property taxes.
B. reducing the mortgage interest rate.
C. serving as good faith by a homebuyer.
D. paying the real estate agent's commission.
E. being a mortgage application fee.
39.What is prepaid interest charged by a mortgage company?
A. escrow
B. points
C. origination fee
D. title fee
E. deed
40.Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment
for principal and interest and no points, or a $520 monthly payment with 2 points? How
many months will it take Todd to cover the cost of the discount points if he takes the
lower monthly payment?
A. 6
B. 10
C. 18
D. 25
E. 48
41.The purpose of a rate cap with an adjustable rate mortgage is to:
A. minimize interest costs.
B. prevent changes in the amount of the monthly payment.
C. increase negative amortization.
D. restrict the amount by which the interest rate can increase.
E. lower the escrow account.
42. A home equity loan may also be referred to as a ____________ mortgage.
A. shared appreciation
B. graduated payment
C. growing equity
D. second
E. buy down
43.Refinancing of a mortgage is recommended when:
A. interest rates rise.
B. interest rates fall.
C. the escrow account balance declines.
D. two or more points are required by the lender at the time of closing.
44.The purpose of an appraisal is to:
A. estimate the current value of a home.
B. reduce the amount paid for property taxes.
C. qualify for a reduced mortgage rate.
D. eliminate the need for home insurance.
45.The assessed value of your home is:
A. The value of your home used to calculate property taxes
B. The estimated current value of your home in the market
C. The price you pay for your home
D. The amount of money the buyer pays when they make an offer on a home
E. The cost of home insurance
46.Earnest money is:
A. The value of your home used to calculate property taxes
B. The estimated current value of your home in the market
C. The price you pay for your home
D. The amount of money the buyer deposits when they make an offer on a home
E. The cost of home insurance
True / False Questions
1. Personal risks, property risks, and liability risks are types of speculative risks.
FALSE
2. The most common method of dealing with risk is to shift, or transfer it to an insurance
company or some other organization. TRUE
3. Self-insurance is the process of establishing a monetary fund that can be used to cover
the cost of a loss. TRUE
4. Vicarious liability refers to the failure to take ordinary or reasonable care in a
situation. FALSE
5. Personal property refers to building and other structures covered by homeowner's
insurance. FALSE
6. Personal belongings that have a high value require coverage with a personal property
floater. TRUE
7. The purpose of a household inventory is to provide evidence of items covered by home
insurance. TRUE
8. Increased liability insurance is available with an umbrella policy. TRUE
9. Replacement cost for settling property insurance claims is less costly than the actual
cash value method. FALSE
10. A home made of wood is more expensive to insure than a comparable brick
structure. TRUE
11. The 100/300 amounts for bodily injury liability insurance refer to the costs of
insurance coverage. FALSE
12. Medical payments automobile insurance coverage pays for the costs of injuries to
persons in the driver's vehicle. TRUE
13. Collision coverage pays for damage to your vehicle for such hazards as fire, theft, or
wind damage. FALSE
14. Property damage liability coverage would pay for damage to another vehicle for
which you were at fault. TRUE
Multiple Choice Questions
15. 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.
16. Defective house wiring is an example of a:
A. hazard.
B. peril.
C. risk.
D. speculation.
17. Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring
18. The legal responsibility for the financial cost of another person's losses or injuries is
referred to as:
A. theft.
B. robbery.
C. liability.
D. assigned risk.
E. collusion.
19. If a homeowner leaves toys on stairs that results in injury to a delivery person, this
may be ruled as:
A. vicarious liability.
B. negligence.
C. assigned risk.
D. umbrella coverage.
E. coinsurance.
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. An umbrella policy is designed to cover:
A. expensive personal property.
B. additional buildings on your property.
C. property when traveling away from home.
D. major personal liability suits.
E. flood damage.
22. Most home insurance policies provide coverage for:
A. earthquake damage.
B. flood damage.
C. an umbrella liability.
D. personal property floaters.
E. medical payments.
23. Renter's insurance would include coverage for:
A. flood damage.
B. personal property.
C. building and other structures.
D. umbrella liability.
E. earthquake damage.
24. Which of the following are 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
25. 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
26. 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
27. 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
E. not able to determine from this information
28. 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.
29. Henry Edwards was injured in an accident caused by another driver who did not have
insurance. Henry's medical expenses would be covered by:
A. medical payments.
B. collision.
C. bodily injury liability.
D. uninsured motorists protection.
E. no-fault coverage.
30. 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
31. 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 with your car.
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. Wind damage occurs to your car costing $800 to repair. If you have a $100 deductible
for collision and full coverage for comprehensive, what portion of the claim will the
insurance company pay?
A. $100
B. $200
C. $500
D. $700
E. $800
34. Which of the following refers to a category based on age, sex, marital status, and
driving habits that is used to set automobile insurance premiums?
A. rating territory
B. assigned risk pool
C. no-fault system
D. driver classification
35. Susan Bize owns a home in Edmond, Oklahoma. 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
E. A deductible 36. 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. Risk Development
37. Georgia Owen has been responsible for an accident and her car has been 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
38. Which 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
39. Your home insurance policy has a $500 deductible. If a windstorm causes $2,000
damage to your home, what amount of the claim would the insurance company pay?
A. $2,000
B. $1,000
C. $1,500
D. $500
E. not able to determine from this information
40. The 500 in 200/500/50 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 in total.
True / False Questions
41. The United States has the lowest per capita medical expenditures of any industrialized
country in the world. FALSE
42. Group health insurance plans comprise about 90 percent of all health insurance issued
by health and life insurance companies. TRUE
43. Very few group health policy contracts have a coordination of benefits provision.
FALSE
44. Basic health insurance coverage includes hospital expense insurance, surgical
expense insurance, and physician expense insurance. TRUE
45. A deductible provision requires the policyholder to pay a basic amount before the
policy benefits begin. TRUE
46. A coinsurance provision requires the policyholder to share the expenses beyond the
deductible amount. TRUE
47. A hospital indemnity policy pays benefits only when you are hospitalized and only to
the hospital where the care was provided. FALSE
48. Dread disease and cancer policies are usually very good values. FALSE
49. Public opinion polls consistently show that Americans are happy with the nation's
health care system. FALSE
Multiple Choice Questions
50. 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.
51. Most health insurance policies in the United States are sold to:
A. victims of communicable diseases.
B. individuals with families.
C. single individuals with no dependents.
D. Employees and their dependents.
E. Employers, who in turn offer the benefits to employees.
52. 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 the makes sure that he receives no more than $30,000 in payments
from his insurance companies. This clause is called:
A. Coordination of benefits
B. Deductible
C. Coinsurance
D. Stop-Loss provisions
E. Major medical expense insurance
53. Sophie Bennett must pay $500 in doctor's 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
54. 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
55. Sophie Bennett has met the deductible for her doctor's visits. She has also paid out
20% of all expenses above this deductible amount. She has paid a total of $5000 in
doctor's visits. At this point there is a clause in her insurance contract that make her
insurance company pay for 100% of all expenses. What clause is this likely to be?
A. Coordination of benefits
B. Add on expenses
C. Coinsurance
D. Stop-Loss provision
E. Major medical expense insurance
True / False Questions
56. Most people buy life insurance to protect someone who depends on them from
financial losses caused by their death. TRUE
57. Life insurance proceeds may provide a retirement income. TRUE
58. 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. TRUE
59. 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
60. A term insurance policy pays a benefit only if you die during the period that the
policy covers. TRUE
61. The premium for permanent life insurance increases with your age. FALSE
62. Two basic types of life insurance are temporary (term) and permanent insurance.
TRUE
63. Term life insurance premiums decrease as you get older. FALSE
64. One important feature of term life policy is its cash value. FALSE
65. A beneficiary is a person designated to receive something such as life insurance
proceeds, from the insured. TRUE
66. Usually, there is no time limit on reinstatement of a lapsed life insurance policy.
FALSE
67. The second-to-die option is paid when the first spouse dies. FALSE
Multiple Choice Questions
68. You probably have little or no need for life insurance if you are:
A. a single person living alone or with parents
B. divorced and have two children
C. married and your spouse works
D. gainfully employed
E. a household with several children
69. Who has the greatest need for life insurance?
A. households with small children
B. singles living alone
C. singles living with parents
D. dual income couple
E. children
70. 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
71. Using the "non-working" spouse method, how much life insurance is needed to cover
the loss of a non-working spouse whose younger of two children is 3 years old?
A. $50,000
B. $150,000
C. $300,000
D. None of the choices
72. Which type of insurance is sometimes called temporary insurance?
A. whole life insurance
B. term insurance
C. straight life
D. ordinary life
E. modified life
True / False Questions
1. The purpose of insurance is to help protect you and your family against financial
hardship due to hazard, accident, death, and similar risks. TRUE
2. Personal risks, property risks, and liability risks are types of speculative risks.
FALSE
3. The most common method of dealing with risk is to shift, or transfer it to an insurance
company or some other organization. TRUE
4. Self-insurance is the process of establishing a monetary fund that can be used to cover
the cost of a loss. TRUE
5 . Homeowner's insurance refers to coverage also available to condominium owners.
TRUE
6. Personal belongings that have a high value require coverage with a personal property
floater. TRUE
7. The purpose of a household inventory is to provide evidence of items covered by
home insurance. TRUE
8. Medical payments coverage in a home insurance policy is designed to pay for legal
action taken against a homeowner who may be legally responsible for injury or property
damage of others. FALSE
9. Replacement cost for settling property insurance claims is less costly than the actual
cash value method. FALSE
10. A home made of wood is more expensive to insure than a comparable brick
structure. TRUE
11. The 100/300 amounts for bodily injury liability insurance refer to the costs of
insurance coverage. FALSE
12. Medical payments automobile insurance coverage pays for the costs of injuries to
persons in the driver's vehicle. TRUE
13. Collision coverage pays for damage to your vehicle for such hazards as fire, theft, or
wind damage. FALSE
14. Property damage liability coverage would pay for damage to another vehicle for
which you were at fault. TRUE
15. The driver classification category is based on automobile style, model, and value of
the vehicle. FALSE
16. The purpose of an assigned risk pool is to assist people with poor driving records in
obtaining automobile insurance coverage. TRUE
Multiple Choice Questions
17. 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.
18. Defective house wiring is an example of a:
A. hazard.
B. peril.
C. risk.
D. speculation.
19. 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
20. Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring
21. The legal responsibility for the financial cost of another person's losses or injuries is
referred to as:
A. theft.
B. robbery.
C. liability.
D. assigned risk.
E. collusion.
22. If a homeowner leaves toys on stairs that results in injury to a delivery person, this
may be ruled as:
A. vicarious liability.
B. negligence.
C. assigned risk.
D. umbrella coverage.
E. coinsurance.
23. High winds cause damage to trees, shrubs, and other plants. This insurance claim
would be covered under the ____________ component of homeowner's insurance.
A. additional living expenses
B. personal property
C. building and other structures
D. personal liability
E. property damage
24. 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.
25. Which of the following is considered personal property for home insurance
coverage?
A. an automobile
B. a garage
C. furniture
D. a house
E. trees and shrubs
26. Most home insurance policies provide coverage for:
A. earthquake damage.
B. flood damage.
C. an umbrella liability.
D. personal property floaters.
E. medical payments.
27. Renter's insurance would include coverage for:
A. flood damage.
B. personal property.
C. building and other structures.
D. umbrella liability.
E. earthquake damage.
28. Which of the following are 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
29. 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
30. Which of the following insurance policy provisions requires that the insured must pay
for part of the loss of a claim 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
31. 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
32. 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.
33. 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
34. 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
35. Which 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
36. 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 with your car.
37. 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
38. Which of the following refers to a category based on age, sex, marital status, and
driving habits that is used to set automobile insurance premiums?
A. rating territory
B. assigned risk pool
C. no-fault system
D. driver classification
39. 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. A liability
40. 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. Risk Creation
41. 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. Risk Development
. Peter Jacobs has set aside $5000 in case he has an accident in his 1980 Honda Civic. He
does not have collision insurance on this car. How is Peter managing his risk?
A. Risk Avoidance
B. Risk Reduction
C. Risk Assumption
D. Risk Shifting
E. Risk Creation
43. Georgia Owen has been responsible for an accident and her car has been 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
44. The 500 in 200/500/50 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 in total.
True / False Questions
45. The best way to avoid the high cost of illness is to stay well. TRUE
46. Group health insurance plans comprise over 80 percent of all health insurance issued
by health and life insurance companies. TRUE
47. Group health insurance will cover you but not your immediate family. FALSE
48. Very few group health policy contracts have a coordination of benefits provision.
FALSE
49. A deductible provision requires the policyholder to pay a basic amount before the
policy benefits begin. TRUE
50. A coinsurance provision requires the policyholder to share the expenses beyond the
deductible amount. TRUE
51. 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
52. Dread disease and cancer policies are usually very good values. FALSE
53. Public opinion polls consistently show that Americans are happy with the nation's
health care system. FALSE
54. Just about every worker is covered by disability income insurance. FALSE
55. Most people are more likely to lose their income due to death than due to disability.
FALSE
Multiple Choice Questions
56. Most health insurance policies in the United States are sold to:
A. victims of communicable diseases.
B. individuals with families.
C. single individuals with no dependents.
D. Employees and their dependents.
E. Employers, who in turn offer the benefits to employees.
57. 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 the makes sure that he receives no more than $30,000 in payments
from his insurance companies. This clause is called:
A. Coordination of benefits
B. Deductible
C. Coinsurance
D. Stop-Loss provisions
E. Major medical expense insurance
58. Sophie Bennett must pay $500 in doctor's 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
59. 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
60. Sophie Bennett has met the deductible for her doctor's visits. She has also paid out
20% of all expenses above this deductible amount. She has paid a total of $5000 in
doctor's visits. At this point there is a clause in her insurance contract that make her
insurance company pay for 100% of all expenses. What clause is this likely to be?
A. Coordination of benefits
B. Add on expenses
C. Coinsurance
D. Stop-Loss provision
E. Major medical expense insurance
61. Joan Wilder receives a phone call from a salesman who tries to sell her an insurance
policy by scaring her about her high risk of death from this disease. She knows that this
type of insurance policy has a notoriously poor value so she politely declines. What type
of insurance policy did this salesman likely try to sell her?
A. Comprehensive Major Medical Insurance
B. Hospital Indemnity Policy
C. Long Term Care Insurance
D. Cancer Insurance Policy
E. None of the choices
62. 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
63. 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
64. 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
True / False Questions
65. Life insurance proceeds may be used to provide an education or income for
children. TRUE
66. Life insurance proceeds may provide a retirement income. TRUE
67. 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. TRUE
68. 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
69. A term insurance policy pays a benefit only if you die during the period that the
policy covers. TRUE
70. The premium for a permanent life policy increases with your age. FALSE
71. Two basic types of life insurance are term and permanent insurance.
TRUE
72. Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20
years. TRUE
73. Term life insurance premiums decrease as you get older. FALSE
74. Even though it is expensive, you should consider the accidental death benefit in a life
insurance policy. FALSE
Multiple Choice Questions
75. Life insurance premiums are determined basically by the:
A. forces of supply
B. forces of demand
C. forces of competition
D. use of mortality tables.
E. guesswork of insurance executives
76. You probably have little or no need for life insurance if you are:
A. a single person living alone or with parents
B. divorced and have two children
C. married and your spouse works
D. gainfully employed
E. a household with several children
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
78. Suppose that yours is a typical family. Your annual income is $35,000. Using the
easy method, what should be your need for life insurance?
A. $35,000
B. $110,500
C. $171,500
D. $191,500
E. over $200,000
79. You are a dual income, no kids family. You and your spouse have the following debts
(total): 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. Using the DINK method, what should be
your need for life insurance?
A. $103,000
B. $206,000
C. $226,000
D. $233,000
E. over $233,000
80. A plan that insures a large number of persons under the terms of a single policy
without a medical examination is called a(n) ____________ life insurance policy plan.
A. individual
B. whole
C. large number
D. permanent
E. group