True / False Questions

1. The purpose of insurance is to help protect you and your family against finan
cial hardship due to hazard, accident, death, and similar risks.
2. Personal risks, property risks, and liability risks are types of speculative
risks.
3. The most common method of dealing with risk is to shift, or transfer it to a
n insurance company or some other organization.
4. Self-insurance is the process of establishing a monetary fund that can be use
d to cover the cost of a loss.
5 . Homeowner's insurance refers to coverage also available to condominium owner
s.

6. Personal belongings that have a high value require coverage with a personal
property floater.
7. The purpose of a household inventory is to provide evidence of items covered
by home insurance.

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
9. Replacement cost for settling property insurance claims is less costly than
the actual cash value method.

10. A home made of wood is more expensive to insure than a comparable brick str
ucture.
11. The 100/300 amounts for bodily injury liability insurance refer to the costs
of insurance coverage.

12. Medical payments automobile insurance coverage pays for the costs of injurie
s to persons in the driver's vehicle.

13. Collision coverage pays for damage to your vehicle for such hazards as fire,
theft, or wind damage.

14. Property damage liability coverage would pay for damage to another vehicle f
or which you were at fault.
15. The driver classification category is based on automobile style, model, and
value of the vehicle.

16. The purpose of an assigned risk pool is to assist people with poor driving r
ecords in obtaining automobile insurance coverage.

Multiple Choice Questions

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.
Defective house wiring is an example of a:
A. hazard.
B. peril.
C. risk.
D. speculation.

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
Using a home security system is an example of ____________ risk.
A. shifting
B. accepting
C. reducing
D. sharing
E. transferring

The legal responsibility for the financial cost of another person's losses or in
juries is referred to as:
A. theft.
B. robbery.
C. liability.
D. assigned risk.
E. collusion.
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.
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
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.

Which of the following is considered personal property for home insurance covera
ge?
A. an automobile
B. a garage
C. furniture
D. a house
E. trees and shrubs
Most home insurance policies provide coverage for:
A. earthquake damage.
B. flood damage.
C. an umbrella liability.
D. personal property floaters.
E. medical payments.
Renter's insurance would include coverage for:
A. flood damage.
B. personal property.
C. building and other structures.
D. umbrella liability.
E. earthquake damage.

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
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 s
ix years. A comparable microwave costs $400 today. What amount will the insuranc
e company pay?
A. $100
B. $150
C. $200
D. $350
E. $400

Which of the following insurance policy provisions requires that the insured mus
t pay for part of the loss of a claim if the property is not insured for the spe
cified percentage of replacement value?
A. personal property floater
B. an endorsement
C. coinsurance clause
D. umbrella coverage
E. assigned risk clause
The ____________ method to settle claims is based on the current replacement co
st of a damaged or lost item less depreciation.
A. replacement value
B. actual cash value
C. umbrella
D. endorsement
E. personal property floater
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.
Which of the following is a system in which drivers involved in an accident coll
ect medical expenses, lost wages, and related injury costs from their own insura
nce company?
A. assigned risk pool
B. financial responsibility coverage
C. comprehensive system
D. no-fault insurance
E. uninsured motorists protection
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

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
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.
Thad Joslin was judged at fault in an automobile accident. Three others were awa
rded damages of $150,000, $75,000, and $75,000. Thad has 100/300 bodily injury l
iability 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

Which of the following refers to a category based on age, sex, marital status, a
nd driving habits that is used to set automobile insurance premiums?
A. rating territory
B. assigned risk pool
C. no-fault system
D. driver classification
Nick Rodr owns a home in Edmond, Oklahoma and pays $665 per year in insurance o
n the home. The $665 is an example of:
A. A peril
B. A hazard
C. A risk
D. A premium
E. A liability

Kevin Brown rides his bicycle to work so that he doesn't have to worry about get
ting 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
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 Ci
vic. 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

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
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. (p. 342) The best way to avoid the high cost of illness is to stay well. TR
UE
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 benef
its provision.
FALSE
49. (p. 346) A deductible provision requires the policyholder to pay a basic amo
unt before the policy benefits begin. TRUE
50. (p. 356) A coinsurance provision requires the policyholder to share the expe
nses beyond the deductible amount. TRUE
51. (p. 346) A stop-loss provision requires the policyholder to pay up to a cert
ain 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. FA
LSE
53. (p. 358) Public opinion polls consistently show that Americans are happy wit
h 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
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 b
een 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 mor
e 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 insuranc
e 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. Howe
ver, her insurance company requires her to pay 20% of all expenses above this de
ductible 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 ins
urance contract that make her insurance company pay for 100% of all expenses. Wh
at 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. (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 d
isease. She knows that this type of insurance policy has a notoriously poor valu
e so she politely declines. What type of insurance policy did this salesman like
ly 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 cosm
etic surgery like the nose job he would like to have. What provision in his insu
rance 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 policyhold
er 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 inc
ome 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 inco
me for children. TRUE
66. (p. 378) Life insurance proceeds may provide a retirement income. TRUE

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 sal
ary 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 deat
h. 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. F
ALSE
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, usuall
y 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 dea
th 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



77. (p. 382) Suppose that yours is a typical family. Your annual income is $50,0
00. Use the easy method to determine your need for life insurance. Your insuranc
e 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 $35,0
00. 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 ba
lance, $2,000; and other debts of $6,000. Further, you estimate that your funera
l will cost $4,000. Your spouse expects to continue to work after your death. Us
ing 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 ins
urance policy plan.
A. individual
B. whole
C. large number
D. permanent
E. group