Deck 11: Auto and Homeowners Insurance

Question 1

The first step in the risk management process is to insure against risk.

Answer 1

False

Question 2

Having liability coverage as part of auto and homeowner's policies helps protect your ________ in the event of an accident.

A) insurance rates
B) credit rating
C) net worth
D) house value

Answer 2

net worth

Question 3

Lessening your exposure to an illness by getting periodic health checkups is an example of

A) avoiding risks.
B) reducing risks.
C) accepting risks.
D) transferring risks.

Answer 3

reducing risks.

Question 4

Having a large deductible on your auto or homeowner's insurance is a form of

A) managing risk.
B) self-insuring risk.
C) financial decision-making.
D) A, B and C are all correct.

Question 5

Insurance is not a good option for managing risk when

A) the probability of loss is very small and the expected loss is small.
B) the benefits outweigh the costs.
C) you want to protect your existing and future net worth.
D) there is a likelihood that an event will cause a large financial loss.

Question 6

In the context of insurance,the term liability is used to mean that you may be required to pay other individuals for damages that you caused to them or their property.

Question 7

The most popular forms of insurance for individuals are property and casualty,life insurance,and health insurance.

Question 8

Which risk management alternative is feasible when the likelihood of an event that could cause a financial loss is very low and the potential financial loss due to the event is small?

A) Avoid risk
B) Reduce risk
C) Accept risk
D) Insure against risk

Question 9

In general,insurance companies generate their revenue from the payments received for policies and from the return earned from investing the payments until the funds are needed to cover claims.

Question 10

Insurance can protect your existing net worth and also increase the likelihood that you will be able to increase your net worth in the future.

Question 11

Independent insurance agents work for one particular company.

Question 12

The decision to obtain insurance should be determined by weighing its costs and benefits.

Question 13

________ is not a suggested risk management method.

A) Avoiding risks
B) Ignoring risks
C) Accepting risks
D) Insuring against risks

Question 14

Since insurance companies rely mostly on their premiums to cover claims,they price their insurance policies to reflect the probability of a claim and the size of the claim.

Question 15

People are more willing to purchase or increase their insurance coverage when

A) economic conditions are favorable and incomes are lower.
B) economic conditions are favorable and incomes are higher.
C) economic conditions are weak and incomes are lower.
D) None of the above.

Question 16

Which of the following is not a popular form of insurance for individuals?

A) Life insurance
B) Health insurance
C) Homeowners insurance
D) General liability insurance

Question 17

Insurance should be considered even when there is a high likelihood than an event will cause a small financial loss.

Question 18

The primary function of insurance is to

A) insure you against all types of risk.
B) become wealthy from the claims you file.
C) maintain your existing level of wealth.
D) give you peace of mind.

Question 19

One method of managing risk is to limit your exposure to a financial loss.

Question 20

Insurance protects you against potential financial losses or liability that result from unexpected events.

Question 21

Auto insurance fraud is not a problem in states that have implemented no-fault insurance programs.

Question 22

Legal expenses incurred by an insurance company when defending you against a lawsuit are deducted from the limits of your liability coverage.

Question 23

In general,insurance companies generate their revenues from

A) receiving payments for policies.
B) investing the proceeds of premiums until the funds are needed to cover losses.
C) the increases in the value of their corporate stock.
D) Both A and B are correct.

Question 24

Collision and comprehensive coverage is optional in most states unless you are financing your car in which case you must have this coverage to protect the lender.

Question 25

In general,the cost of comprehensive and collision insurance is the most expensive part of your automobile policy and represents about 60% of the cost.

Question 26

Independent insurance agents

A) work for just one insurance company.
B) represent many different insurance companies.
C) work for only two or three companies.
D) are self-employed and represent their own companies.

Question 27

Most states have financial responsibility laws that require individuals who drive cars to purchase a minimum amount of liability insurance.

Question 28

Insurance agents who work for one particular company are called

A) company agents.
B) captive agents.
C) independent agents.
D) freelance agents.

Question 29

Given the large number of uninsured drivers,uninsured motorist coverage is needed.

Question 30

Property damage liability covers damages to your car from accidents that are your fault.

Question 31

Underwriters for an insurance company do not

A) market insurance policies.
B) calculate the risks of specific policies.
C) decide what insurance policies to offer.
D) decide what premiums to charge.

Question 32

Medical payments coverage insures against costs of medical care for you and other passengers in your car when you are at fault in an accident.

Question 33

If you have good health insurance,you should probably not take out medical payments coverage on your automobile policy.

Question 34

States with no-fault insurance programs do not hold specific drivers liable for causing accidents.

Question 35

Which of the following is not a service company that would rate the financial condition of insurance companies?

A) A.M. Best
B) Kelly's Blue Book
C) Moody's Investor Services
D) Standard and Poor's Corporation

Question 36

Some credit cards provide you with collision and comprehensive insurance benefits if you use that card to pay for car rentals.

Question 37

Liability insurance coverage would cost more for an expensive car than for an inexpensive car of the same age.

Question 38

The deductible is the amount of damage to your car that you are responsible for paying before any coverage is provided by the insurance company.

Question 39

Collision coverage is normally limited to the car itself and not to items that were damaged while in the car.

Question 40

The insurance agent's role includes all of the following,except for

A) assessing the client's risk of loss.
B) assisting the client in determining the amount of insurance they may need.
C) working with the insurance company to prepare the client's insurance policy.
D) assisting the client in filing a claim for coverage.

Question 41

In general,the most expensive part of your automobile policy is ________ coverage.

A) liability
B) comprehensive and collision
C) medical payments
D) uninsured motorist

Question 42

All of the following statements about uninsured motorist coverage are true except

A) this coverage is recommended since many drivers are uninsured.
B) it applies to accidents caused by a hit-and-run driver.
C) it replaces bodily injury liability when you are at fault.
D) it pays when a driver who is at fault has an insurance company that goes bankrupt.

Question 43

If you have a car accident in which a person in the other car is injured,the type of insurance that would protect you from financial loss is

A) life insurance.
B) homeowners insurance.
C) health insurance.
D) auto insurance.

Question 44

The comprehensive and collision premium of a Rolls-Royce in relationship to a Chevy

A) will be higher because a Rolls-Royce costs more than a Chevy.
B) will be lower because Rolls-Royce drivers will be more careful.
C) depends on the insurance rate structure of the state in which the car is insured.
D) is a poor investment.

Question 45

Which of the following would pay for medical care for people who were injured in your automobile as a result of an accident that was your fault?

A) Medical payments coverage
B) Bodily injury liability coverage
C) Collision coverage
D) Comprehensive coverage

Question 46

Which of the following statements regarding auto insurance is not true?

A) No-fault insurance programs do not hold a specific driver liable for causing an accident.
B) Exaggerated personal injury claims result in additional insurance expenses of about $100 million per year.
C) One reason for high auto insurance premiums is auto insurance fraud.
D) If you drive a car, you need to have auto insurance.

Question 47

The 25 in 50/100/25 refers to ________ coverage.

A) collision
B) bodily injury liability
C) comprehensive physical damage
D) property damage liability

Question 48

Additional coverage on your automobile insurance policy can be purchased for

A) the cost of a rental car while your car is being repaired.
B) the protection of valuables you are carrying in your car.
C) the cost of towing, even if the problems are not the result of an accident.
D) Both A and C are correct.

Question 49

If you have an accident resulting in $2,000 damage to your car and have $500 deductible collision coverage,which of the following statements is true?

A) Your insurance company will pay $2,000.
B) You will pay $1,500.
C) You will pay the first $500 and your insurance company will pay $1,500.
D) You and your insurance company will split the $2,000 damage, each paying $1,000.

Question 50

A deductible is an amount

A) the person at fault will pay.
B) not paid by the insurance company.
C) if increased will increase the premium.
D) mandated by state law.

Question 51

A common form of auto insurance fraud is

A) faking an accident or injury.
B) stealing merchandise from a car.
C) driving without a valid license.
D) None of the above.

Question 52

Which of the following statements is not true concerning comprehensive and collision insurance?

A) If you are financing a car, this insurance is required by the lender.
B) Financially, it is advisable to take out the lowest deductible possible.
C) You may want to drop this coverage on an older car that is not being financed.
D) The deductible is really a form of self insurance.

Question 53

Which of the following is not true about state financial responsibility laws?

A) They require individuals who drive cars to purchase a minimum amount of liability insurance.
B) They are the same for all states.
C) They may require proof of insurance to register a car.
D) They may require proof of insurance when drivers are involved in an accident.

Question 54

A deductible of $300 requires

A) the insurance company to pay the first $300 at 100% of damages.
B) you to pay the first $300 of damages.
C) the insurance company to pay the first $300 at 80% of damages.
D) the insurance company of the party at fault to pay.

Question 55

Which of the following is not true regarding medical payments coverage?

A) It covers both family and nonfamily members.
B) It is not recommended or needed if you have health insurance.
C) It may even cover funeral expenses.
D) Insurance professionals recommend coverage of about $10,000 per person.

Question 56

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) damage to a neighbor's tree caused by your car.

Question 57

The 100 in 100/300/50 refers to the

A) property damage liability coverage.
B) limit for bodily injury claims that can be paid to one person.
C) amount of the deductible.
D) total coverage for an accident.

Question 58

The amount of damage that you will be required to cover if your car is involved in an accident that is your fault is your

A) deductible.
B) co-payment.
C) premium.
D) fair share.

Question 59

To significantly reduce your automobile insurance premiums and still have adequate coverage,you should

A) take the minimum levels of liability coverage.
B) raise the deductibles on comprehensive and collision.
C) waive medical payments coverage.
D) waive uninsured motorist coverage.

Question 60

The bodily injury liability coverage of your automobile policy will not pay for

A) medical expenses of those in the other car for an accident that you caused.
B) lost wages of those in the other car for an accident that you caused.
C) injuries to others in your car due to an accident that you caused.
D) pain and suffering awards to those in the other car for an accident that you caused.

Question 61

Use the following two columns of items to answer the matching questions below:
collision coverage

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident

Question 62

In general,which coverage provides higher total dollar coverage?

A) Medical payments up to $10,000
B) Collision coverage
C) Comprehensive coverage
D) Liability coverage of 100/300

Question 63

Your automobile insurance policy contains policy limits of 200/300/100.If you have an accident in which you are deemed at fault and two people sustain bodily injuries that result in combined claims of $450,000,how much of the claim will not be covered under your insurance policy?

A) $250,000
B) $150,000
C) $350,000
D) $450,000

Question 64

If an insurance policy carries a $250 deductible and an accident results in the following losses,what will be the reimbursement from the insurance company under your collision and comprehensive coverage? ∙ Replacement of trailer hitch $200
∙ Replacement of rear bumper $150
∙ Replacement of computer being carried on the back seat $300
∙ Replacement of rear windshield $100

A) $200
B) $250
C) $450
D) $750

Question 65

Use the following two columns of items to answer the matching questions below:
deductible

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident

Question 66

Some states have implemented ________ insurance programs that do not hold a specific driver liable for causing an accident.

Question 67

What three insurance components do automobile and homeowner's policies usually have in common?

Question 68

Of the following statements,which is not true regarding no-fault insurance?

A) Not all states have no-fault insurance.
B) It helps determine which driver is at fault and which has no fault.
C) It is intended to avoid costly legal battles.
D) It does not prevent insurance fraud.

Question 69

Use the following two columns of items to answer the matching questions below:
financial responsibility laws

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident

Question 70

The coverage that is designed to protect you if you cause an accident where the driver or passenger of the other car sustains injuries and sues you is called ________.

Question 71

One of the problems with no-fault automobile insurance is that it

A) results in higher court costs.
B) results in higher jury awards to victims.
C) doesn't penalize drivers who cause accidents to the degree that they should be.
D) hasn't resulted in lower costs to insurance companies or lower auto insurance premiums.

Question 72

Younger drivers,especially males,between the ages of 16 and 25 are more likely to get in accidents and therefore pay higher insurance premiums.

Question 73

Use the following two columns of items to answer the matching questions below:
auto insurance

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident

Question 74

Once drivers are labeled as "high risk," they will not be able to get automobile insurance at any price.

Question 75

What do policy limits of 200/300/100 on an automobile insurance policy mean?

Question 76

The ________ is the amount that you will need to pay if your car is damaged in an accident that was your fault.

Question 77

Since insurance is a regulated industry,the rates for automobile policies are relatively the same among different companies operating in a state.

Question 78

Your car collides with a vehicle that has just run a red light,and your policy limits are 200/300/100.What is the maximum coverage under your policy for damages to the vehicle that you struck?

A) $200,000
B) $300,000
C) $100,000
D) zero

Question 79

Use the following two columns of items to answer the matching questions below:
comprehensive coverage

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident

Question 80

Use the following two columns of items to answer the matching questions below:
medical payments coverage

A)requires individuals who drive cars to purchase a minimum amount of liability insurance
B)pays for injuries to you or people in your car in an accident where you (the driver) are at fault
C)a set dollar amount that you are responsible for paying before any coverage is provided by your insurer
D)covers damage to your car as a result of theft, fire, vandalism, or various other events
E)vehicle insurance to cover various injuries, your property, and the property of others
F)covers damage to your car when you are at fault in an accident