Questions and Answers
Which of the following would not be a huge financial risk (and, therefore would not require insurance) if you had a full emergency fund of $500 or more?
What is the time between the disabling event and the beginning of payments in your disability coverage called?
Elimination period
What is a life insurance policy for a specific period of time called?
Term
What is the primary purpose of insurance?
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Which of the following is not a recommended way of lowering your car insurance premiums?
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Which of the following types of insurance is not recommended for a young single adult?
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Which of the following is not a recommended way to save on your health insurance premium?
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When does a person become self-insured?
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Any kind of duplicate insurance coverage is a bad idea.
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You should not buy long-term care insurance until age 30.
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Disability insurance is not necessary if you have a good health insurance policy.
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Cash value insurance is normally for life and is more expensive than term life insurance because it funds a savings plan.
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Which of the following is not a benefit of having a will?
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Which of the following policies would be a duplicate coverage for your health insurance policy?
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What type of insurance covers medical expenses of a victim in a car accident where you are at fault?
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Comprehensive coverage takes care of damage to your car that is not caused by a collision.
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After high school, you should have the following types of insurance: auto, renter's, health, and long-term care insurance.
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Following the Five Foundations will help you to, one day, become self-insured.
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Renter's insurance is not necessary if you don't have a lot of expensive things.
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Prepaid burial policies are a good idea.
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Duplicate coverage, or any extra insurance on top of your existing insurance, is not necessary.
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Any insurance with cash value or that combines insurance with investments is a bad idea.
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You should not buy identity theft protection that only provides credit report monitoring.
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Good identity theft protection includes restoration services.
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Disability insurance offered through your employer is usually the most expensive coverage option.
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What describes the type of coverage in an insurance agreement?
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Who is the recipient of assets passed on from the death of a friend or relative?
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What is a legally enforceable declaration of how a person wishes his or her property to be distributed after death called?
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What is a specific amount of money that you pay when insurance only covers a portion of costs called?
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What applies to the amount of protection you have through an insurance company in the event of a loss?
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What is the paperwork filed with an insurance company in order to get them to cover a loss for someone they insure called?
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What is the amount you pay monthly, quarterly, semiannually, or annually to purchase different types of insurance called?
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What type of insurance covers property damage and medical bills if you are at fault in a car accident?
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What is the amount you must pay before you begin receiving any benefits from your insurance company called?
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What is an amount of money you pay to help cover a portion of your medical costs called?
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Which types of insurance are included in the list?
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Study Notes
Personal Finance Insurance Concepts
- Having a full emergency fund negates the need for insurance on small personal losses, such as losing a cell phone.
- The elimination period is the timeframe between a disabling event and the start of disability insurance payments.
- Term life insurance provides coverage for a specified period and ceases when that time expires.
- The central aim of insurance is to transfer financial risk from an individual to the insurance provider.
Insurance Optimization Strategies
- Dropping auto insurance coverage entirely is not a recommended strategy to lower premiums.
- Life insurance is generally not necessary for young single adults due to fewer financial dependents.
- Keeping health insurance is critical, regardless of youth or perceived good health, to avoid substantial risks.
Self-Insurance and Coverage
- Individuals become self-insured when their children are independent, debts are cleared, and retirement is fully funded.
- Duplicate insurance coverage leads to unnecessary spending and is considered a poor choice.
Long-Term Care and Disability Insurance
- The notion that long-term care insurance should not be purchased before 30 is false; early consideration can be beneficial.
- Disability insurance is essential regardless of the robustness of health insurance, contrary to the belief that good health insurance makes it unnecessary.
Life Insurance Insights
- Cash value insurance is typically more expensive than term life insurance as it combines life coverage with a savings component.
- A will is important irrespective of the size of one’s estate; many assume it is only needed for larger wealth.
Understanding Policies and Beneficiaries
- Health insurance can have policies that provide duplicate coverage, such as cancer and hospital indemnity insurance.
- Liability insurance covers expenses for damages or injuries to others when you are at fault in an accident.
Misconceptions in Insurance
- Comprehensive coverage protects against damages not caused by collisions, confirming its importance in auto insurance.
- Renter's insurance remains essential even for those without expensive possessions, countering the belief that it is only necessary for high-value belongings.
- Prepaid burial plans are generally not advisable, along with other forms of duplicate coverage that inflate insurance costs unnecessarily.
Insurance Terms and Definitions
- Policy: The official document detailing coverage.
- Beneficiary: The individual entitled to receive assets after someone's death.
- Will: A legal document expressing a person's wishes regarding property distribution following death.
- Out-of-pocket expense: Costs an individual pays themselves when insurance only covers part of a service.
- Coverage: The extent of protection insurance provides against losses.
- Claim: A formal request to an insurance company for compensation due to a loss.
- Premium: The amount paid periodically for maintaining insurance policies.
- Deductible: The sum the insured must pay before the insurance company pays benefits.
- Co-payment: A fixed amount paid for medicare services or goods.
Essential Insurance Types
- Major types include homeowners, renters, auto, disability, health, long-term care (for those 60 and older), identity theft protection, and life insurance.
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Description
This quiz explores key concepts in personal finance related to insurance, including emergency funds, term life insurance, and self-insuring strategies. Understand the importance of insurance in transferring financial risk and optimizing coverage. Test your knowledge on how to effectively manage personal insurance needs.
