Test 4 Spring 201110 Chapters 10-12

True / False Questions

1. (p. 309) 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. (p. 310) Personal risks, property risks, and liability risks are types of speculative risks.
FALSE
3. (p. 310) The most common method of dealing with risk is to shift, or transfer it to an insurance
company or some other organization. TRUE
4. (p. 311) Self-insurance is the process of establishing a monetary fund that can be used to cover
the cost of a loss. TRUE
5 . (p. 316) Homeowner's insurance refers to coverage also available to condominium owners.
TRUE
6. (p. 317) Personal belongings that have a high value require coverage with a personal property
floater. TRUE
7. (p. 317) The purpose of a household inventory is to provide evidence of items covered by
home insurance. TRUE
8. (p. 319) 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. (p. 322) Replacement cost for settling property insurance claims is less costly than the actual
cash value method. FALSE
10. (p. 323) A home made of wood is more expensive to insure than a comparable brick
structure. TRUE
11. (p. 326) The 100/300 amounts for bodily injury liability insurance refer to the costs of
insurance coverage. FALSE

Test 4 Spring 201110 Chapters 10-12

12. (p. 326) Medical payments automobile insurance coverage pays for the costs of injuries to
persons in the driver's vehicle. TRUE
13. (p. 327) Collision coverage pays for damage to your vehicle for such hazards as fire, theft, or
wind damage. FALSE
14. (p. 327) Property damage liability coverage would pay for damage to another vehicle for
which you were at fault. TRUE
15. (p. 330) The driver classification category is based on automobile style, model, and value of
the vehicle. FALSE
16. (p. 331) 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. (p. 309) 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. (p. 309) Defective house wiring is an example of a:
A. hazard.
B. peril.
C. risk.
D. speculation.
19. (p. 310) 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

Test 4 Spring 201110 Chapters 10-12

20. (p. 310) Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring
21. (p. 315) 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. (p. 315) 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. (p. 316) 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. (p. 316) 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.

Test 4 Spring 201110 Chapters 10-12

25. (p. 317) 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. (p. 319) 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. (p. 319) 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. (p. 319) Which of the following are not covered by renter's insurance?
A. medical expenses for injuries to visitors
B. fire damage of the building's roof
C. additional living expenses
D. accidental damage to the property of others
E. cost of legal action due to personal liability
29. (p. 322) 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

Test 4 Spring 201110 Chapters 10-12

30. (p. 322) 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. (p. 322) 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. (p. 326) 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. (p. 327) 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. (p. 327) 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

Test 4 Spring 201110 Chapters 10-12

35. (p. 327) 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. (p. 328) 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. (p. 326) 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. (p. 330) 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. (p. 309) 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

Test 4 Spring 201110 Chapters 10-12

40. (p. 310) 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. (p. 310) 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
42. (p. 310) 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. (p. 327) 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. (p. 326) 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.

Test 4 Spring 201110 Chapters 10-12

True / False Questions
45. (p. 342) The best way to avoid the high cost of illness is to stay well. TRUE
46. (p. 344) Group health insurance plans comprise over 80 percent of all health insurance
issued by health and life insurance companies. TRUE
47. (p. 344) Group health insurance will cover you but not your immediate family. FALSE
48. (p. 345) Very few group health policy contracts have a coordination of benefits provision.
FALSE
49. (p. 346) A deductible provision requires the policyholder to pay a basic amount before the
policy benefits begin. TRUE
50. (p. 356) A coinsurance provision requires the policyholder to share the expenses beyond the
deductible amount. TRUE
51. (p. 346) 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. (p. 347) Dread disease and cancer policies are usually very good values. FALSE
53. (p. 358) Public opinion polls consistently show that Americans are happy with the nation's
health care system. FALSE
54. (p. 365) Just about every worker is covered by disability income insurance. FALSE
55. (p. 365) Most people are more likely to lose their income due to death than due to disability.
FALSE

Test 4 Spring 201110 Chapters 10-12

Multiple Choice Questions
56. (p. 344) 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. (p. 345) 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. (p. 346) 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. (p. 346) 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. (p. 346) 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

Test 4 Spring 201110 Chapters 10-12

61. (p. 347) 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. (p. 350) 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. (p. 346) 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. (p. 365) 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. (p. 378) Life insurance proceeds may be used to provide an education or income for
children. TRUE
66. (p. 378) Life insurance proceeds may provide a retirement income. TRUE

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Test 4 Spring 201110 Chapters 10-12

67. (p. 382) 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. (p. 382) 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. (p. 385) A term insurance policy pays a benefit only if you die during the period that the
policy covers. TRUE
70. (p. 386) The premium for a permanent life policy increases with your age. FALSE
71. (p. 384) Two basic types of life insurance are term and permanent insurance.
TRUE
72. (p. 385) Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20
years. TRUE
73. (p. 385) Term life insurance premiums decrease as you get older. FALSE
74. (p. 394) Even though it is expensive, you should consider the accidental death benefit in a
life insurance policy. FALSE
Multiple Choice Questions
75. (p. 378) 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. (p. 381) 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

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Test 4 Spring 201110 Chapters 10-12

77. (p. 382) 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. (p. 382) 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. (p. 382) 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. (p. 390) 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

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