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61 Cards in this Set
- Front
- Back
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What is the difference between pure and speculative risk?
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SPECULATIVE RISK is the potential for gain and loss
PURE RISK is the potential only for loss |
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The uncertainty about the outcome of a situation or event
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Risk
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What is the risk management process?
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1)Identify sources of risk
2)Estimate risk and potential losses 3)Choose how to handle risk 4)Implement the program 5)Evaluate and adjust the program |
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The process of identifying and evaluating situations involving pure risk to determine and implement the appropriate means for its management
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Risk Management
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What are the methods of handling risk and an example of each?
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1)Avoid Risk-no driver's license
2)Retain Risk-no insurance on certain jewelry (keeping the risk yourself) 3)Control Losses-smoke detector 4)Transfer Risk-buying insurance 5)Reduce Risk-alarm system; buying insurance w/high deductibles |
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A mechanism for transferring and reducing pure risk through which a large number of individuals share in the losses suffered by members of the group as a whole
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Insurance
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The fee paid for insurance protection
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Premium
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Any event that causes a financial loss
(EX)House Fire |
Peril
Fire - Peril - House |
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Any condition that increases the possibility that a peril will occur
(EX)Leaving your house unlocked while on vacation |
Hazard
Unlocked house - Hazard - Break-in |
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Source of risk
(EX)Car |
Exposure
(EX)Car, Home, TV |
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What are the three types of hazards?
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Physical, Morale, and Moral
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What is the definition of a physical hazard?
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Characteristics of what is insured
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What is the definition of a morale hazard?
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Bad judgement with no intention of causing any harm; insurance only sometimes pays for this
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What is the definition of a moral hazard?
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Bad judgement with the intention to cause harm; insurance never pays for this
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What are the requirements for a loss to be insured?
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1)Fortuitous-UNEXPECTED with regaurd to timing and magnitude
2)Financial-cost you dollars 3)Personal-your loss ***Must have all three!!! |
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What is the purpose of reading your insurance policy?
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To read the principle of indemnity.
Principle of Idemnity-insurance will pay no more than the actual loss suffered |
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What factors reduce your insurance cost?
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1)Deductibles:money we pay upfront before insurance pays anything; save money by higher deductibles
2)Co-insurance:drugs, doctor visits 3)Hazard Retention:nonsmokers 4)Loss Reduction:smoke alarms, fire extinguishers |
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Who are the sellers of insurance and what do they do?
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1)Independent Agents:sale to multiple companies;act as a third-party link between insureers and insured
2)Exclusive Agents:only sale for one company for a specific type of insurance 3)Direct Sellers:don't use agents;market their policies through mail order promotions, newspapers, internet, etc. |
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How are insurance contracts issued?
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1)Compete application
2)Underwritting:insurer's procedure for deciding which applicants to accept 3)Premium Determination:price charged for each unit insured 4)Issuance of policy |
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What is section one and section two of homeowner's insurance and what is covered under each?
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Section One:protection from various types of property damage losses
(EX)Fire, theft, tornados, floods except from rising water, hail, etc. Section Two:liability protection; offers varying amounts of money, want maximum amount *coverage if someone else gets hurt at your house or while with you (EX)getting hurt on a golf cart |
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What are the different types of automobile insurance and/or coverage?
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1)Liability Insurance (Coverage A):damage to others and your property;basic coverage required in the state of Alabama
2)Medical Payments (Coverage B):injuries to passengers in your car, only minor damage 3)Uninsured Motorists (Coverage C):if the other person involved in the accident doesn't have insurance;38% of Tuscaloosa are not insured 4)Physical Damage Insurance (Coverage D):collision and comprehensive Collision:involves hitting another vehicle, hitting an object that is stationary when you hit it, or single car accident when you roll you car Comprhensive:a rock hitting your car, deer, or car being keyed 5)Other:adding for tow trucks and rental car service |
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What should you know about buying auto insurance?
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1)Determine coverage and policy limits:determine if you want other coverage;look at the claims processing provided by each company
2)Shop for pricing:only 40% of people shop around for good pricing;compare apples to apples |
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What are the other types of property and liability insurance?
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1)Comprhensive Personal Liability:for people who don't own a home, but still need insurance
2)Professional Liability:professionals such as physicians, lawyers, and accountants who can be held legally liable for losses suffered by patients or clients 3)Umbrella Liability:additional insurance on top of home and car insurance;fairly cheap to do;usually half million coverage 4)Floater Policies:attached to your home owner's policy |
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What are the steps for collecting on property and liability losses?
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1)Contact your agent: don't go straight to claims
2)Document loss:THIS IS YOUR SOLE RESPONSIBILITY;use digital pictures to document everything from the inside to outside of your house;need receipts and place in safety deposit box 3)File claim form 4)Sign the release:NEVER SIGN A RELEASE ON YOUR HEALTH |
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What are the different choices when it comes to group health care plans?
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1)Direct Medical Care Expense
2)Rehabilitation and Custodial Care Expense 3)Lost Income |
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What are some sources of health care plans?
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1)Health Maintenance Organizations:HMO;preventive care, promote healthiness; usually provide one physical per year; require you to have a primary care physican, you can't go to a specialist until primary physican refers them
2)Traditional Health Insurance:more expensive; manage your health care for you 3)Customer-Driven Health Care:believe that you know more; paired with Health care savings account; set at $5,000.00 of your own money before insurance kicks in 4)Government Health Care Plans:largest health care provider at state and federal level; Medicad and Medicare |
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What types of care are covered your health are plan?
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Exclusions: what is not covered under your insurance
(EX)elective cosmetic surgery, self-inflicted injuries, unless previously diagnosed acts of war when you are in war, VA pays |
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Who is covered under your health care plan?
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Single and Family; if a baby is born the birth has to be filed within 10 days; another option is single + one coverage
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When does coverage begin and end with you health care plan?
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Some begin the day you go to work or there may be a gap from the day you start until the first day of the next month; also, sometimes pre-existing conditions are not covered, new law is a passed is possible solution
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What other types of care are covered un your health care plan?
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1)Hospital Expense: room, food, and maybe water in the room
2)Surgicial Expense: everything while you are in the operating room 3)Medical Exoense: post doctor visits, drugs *Everything above does have limits |
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What does your health insurance pay for and does not pay for?
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1)Deductibles: initial portions that you pay when at the doctor's office
2)Co-payments: money you pay for doctor visits and drugs 3)Coinsurance: first 10 days in the hospital you may have to pay some; $3,000-$5,000 4)Policy Limits: limits to everything your insurance will pay Item Limit: specify the maximum reimbursement for a particular health care expense Episode Limit: maximum payment for health care expense arising from a single episode of illness or injury, each episode considered seperately Time Limit:maximum money paid in a year Aggregate Limit: maximum money paid in a lifetime |
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What precautions do you need to take in order to protect your income during disabilities?
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1)Eliminate (Waiting) Period: pays 60% of previous pay after 90 days; you acquire 1 day of sick leave for every month you work, build up sick days until disability kicks in
2)Benefit Period: maximum time for which benefits will be paid 3)Degree of Disability: when unable to do any part of any job (EX)Christopher Reeves wasn't considered completely disabled because he could give speeches 4)Residual Clause: partial payment for partial disability 5)Social Security Rider: provides an extra dollar amount of protection if you fail to qualify for Social Security disability benefits 6)Cost-of-Living Adjustment: need to adjust every year in order to keep up with inflation *Can not buy 100% protection, only aroud 80% *Disability insurance ends at 65 |
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Protects your loved ones against the possibility that you may die too soon
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Life Insurance
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How much life insurance do you need?
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1)Final Expense Needs: one time expenses occuring just prior to or after death
2)Income replacement Needs: this is the number one reason for life insurance 3)Readjustment Period Needs: transitioning period (EX)stay at home Mom dies, Dad eventually has to go back to work, care for children 4)Debt-repayment needs: (EX)paying off a house in order for other parent to live 5)College Expense Needs: adequate replacement of income tp allow continuation of college savings 6)Special Needs: (EX) family with disabled child that requires medical or custodial care as an adult 7)Government Benefits: don't rely soley on this 8)Current Insurance & assets: depends on present circumstances |
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What approach can one use in order to calculate the dollar amount of life insurance needed?
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1)Multiple of Earnings Approach: estimates the amount of life insurance needed by multiplying your income by some number, such as 5,7, or 10;
2)Needs Approach:this is the best approach; take into account all of family's personal needs |
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What are the types of life insurance?
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1)Term Life Insurance
2)Cash Value Life Insurance 3)Variable Return Life Insurance |
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What does Term Life Insurance offer?
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1)Guaranteed renewable term: set up for X number of years; still renewable if health declines
2)Level premium term: same amount of insurance and money each month 3)Decreasing term: face amount of coverage declines annually, while premium remains constant 4)Convertible Term: offers the option of exchanging policy for cash value 5)Group Term: employers provide, providing a group policy to all employees 6)Credit Term: insurance sold to you when you take out a loan |
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What does Cash Value Life Insurance offer?
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1)Whole Life: cash value insurance for life that expects you to pay a premium for life
(EX) Grand parents probably have; pay more per month; fixed rate of 3% 2)Limited-pay Life: (LPC) whole life insurance that allows premium payments to cease before you reach the age of 100 3)Adjustable Life: DON'T DO 4)Modified Life: reduced premiums in early years and higher premiums thereafter 5)Endowment Life: pays the face amount of policy either upon death of the insured or at some previously agreed-upon date, whichever comes first; most expensive; usually used for grandchildren's college education |
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What does Variable Return Life Insurance offer?
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1)Universal: nothing more than a cash value policy with no guaranteed interest rates; changes continuously
2)Variable: takes part of your money and buys term life insurance, than the other part of your money is invested and you choose which mutual funds to invest in 3)Variable Universal: Combines both policies |
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Who are the parties involved in a Life Insurance Contract?
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1)Insured: person whose life is insured
2)Policy Holder / Owner: person who owns the contract; holds all the cards 3)Beneficiary: person who receives the money once the insured dies 4)Contingent Beneficiary: person who receives the money if the beneficiary dies |
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If the beneficiary dies, does the contingent beneficiary recieve the money?
True or False |
False: the insured is not dead
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What is the organization of your life insurance policy or contract?
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1)Declarations: basic information about the insured person or property, premium to be paid, time period of coverage, and policy limits
2)Insuring Agreements: broadly defined coverages under the policy 3)Exclusions: what is not included (EX)can't die from suicide first two years of policy; sky diving; flying on an airplane 4)Conditions: how you file your claim (EX)death certificate 5)Endorsements: amendments and additions to basic insurance policy that can both expand and limit coverage to accomodate specific needs (EX)accidental death for 10% extra of insurance policy, will pay double if you are killed accidentally **Wavier of Premium: 5% extra of insurance; pays if you become disabled and waves your premium |
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What are the terms and provisions unique to life insurance policies?
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1)The Application: policyholder's offer to purchase a policy
2)Lives Covered: most policies cover the life of a single person; can cover two or more people 3)Incontestability Clause: place a time limit usually two years after issuance of the policy to deny a claim 4)Suicide Clause:denying coverage to insured if the insured commits suicide within the first few years of the policy being issued 5)Cash Dividends:a return of a portion of the premium paid for life insurance policy;not considered taxable income 6)Death Benefit:amount that will be paid upon the death of the insured person 7)Grace Period:period of time (30-31 days) during which an overdue payment may be paid without a lapse of the policy and insurance will still pay death benefit 8)Multiple Indemnity:provides doubling or tripling of the face amount if death results from certain specified causes, like an accident |
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What are the settlement options of a life insurance policy?
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1)Lump Sum: cash settlement immediately after death
2)Interest Income: receiving annual interest earned on death benefit; provides for two people to receive money, usually for a second marriage; person will take benefit money and place it into a savings account 3)Income for Specific Amount: beneficiary can recieve a specific amount of income per year until it runs out 4)Income for Specific Period: receiving money for a specific number of years 5)Income for Life: money paid to the beneficiary based on their life expectancy in order to calulate the level of income; if beneficiary dies before receiving all the money from the policy, the insurance company gets to keep the money **Interest income and Income for Life are beneficiary for widows |
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What are the policy features of Cash Value Life Insurance?
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1)Non-forteiture values
2)Policy Loans: you can borrow money for life insurance and not pay it back, but if you don't it is subtracted from your death benefit 3)Wavier of Premium: pays if you become disabled and waves your premium 4)Gauranteed Insurability: certain times of the year when you can become insured with out a physical 5)Living Benefit Clause: (EX) a person is given 6 months to live, a huge amount of money can be sent to the family if proven correct; prevents more stress on the family |
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What Life Insurance Needs will be needed over the Life Cycle?
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1)Childhood and Single-hood: don't need life insurance
2)Marriage: increases the need for life insurance 3)Children: 0 to 18; sharp increase in life insurance needs; takes $250,000 average to raise a child 4)Empty Nest: (1)Psycological Empty Nest = dropping child off at college dorm room (2)Financial Empty Nest = child completely off parents payroll 5)Retirement: reduces the need for life insurance |
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What are the two reasons that women to plan for retirement?
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1)Live Longer
2)Paid less money |
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What are some key retirement planning advice tips?
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1)Put your own money away for retirement
2)With an employer-sponsored plan contribute to maximize matching funds 3)Start early 4)Save a lot * 12-15% in 20's * 20-25% if older 5) Plan wisely 6)Don't withdraw the funds until retirement 7)Plan the distribution |
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How do you become qualified for Social Security Benefits?
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*Social Security Credits = can be earned for a certain amount of work covered under Social Security during the calendar year
1)Fully insured: status requires 40 credits and provides the worker and his or her family with benefits under the retirement, survivors, and disability programs 2)Currently Insured: status requires six credits to be earned in the most recent three years 3)Transitionally Insured: status applies only to retired workers who reach the age of 72 without accumulating 40 credits (ten years) 4)Not Insured: workers younger than 72 who have fewer credits than six credits of work experience |
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How do you estimate the benefits from your Social Security?
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1)Full-Benefit Age: 67 or those born in 1960 or later are entitled to to full Social Security benefits
2)Younger Age: can choose to start receiving retirement benefits as early a age 62, however your basic retirement benefit will be permanently reduced 3)Later Age: delaying taking benefits beyon your full-benefit retirement age, your benefit would be permanently increased by as much as 8% per year |
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Why should you invest in tax-sheltered retirement accounts?
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1)Contributions may be tax deductible
2)Earnings are tax deferred 3)You accumulate more money 4)You have ownership and portability 5)Withdrawls might be tax free |
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Ensures that a retirement plan participate has the right to take full possession of all employer contributions and earnings if employee is dismissed, resigns, or retires
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Vesting
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What are some examples of personal retirement accounts?
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1)Individual Retirement Account (IRA): annual contributions, taking company benefits and rolling them over into a personal account
*Traditional: offers tax-deferred growth *Roth: nondeductible, after-tax IRA that offers significant tax and retirement planning advances; better choice 2)Keough Plan: tax-deferred retirement account designed for self-employed and small-business owners 3)SEP-IRA: intended for taxpayers with self-employment income and owners of small businesses; easier to set up and maintain |
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What are some examples of employer sponsored retirement plans?
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1)Defined Contribution Plan: you or your employer or both put money into a retirement plan; front end
2)Defined Benefit Plan: pension plan; how much you will get when you retire 3)Cash Balance Plan: an interest earning account credited with a percentage of pay on a monthly basis 4)Additional Plans: ESOP, profit-sharing plan |
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The arrangements made before death to pass on your wealth after death
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Estate Planning
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The wealth accumulated over a lifetime
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Estate
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What steps are involved in transferring your estate?
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1)Transfers through probate
2)Transfers by law 3)Transfers by contract 4)Transfers by will |
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What happens if a person dies and does not have a will?
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Intestate = when a person dies without a valid will
1)State decides distribution 2)If no heirs, the estate "escheats" to the state |
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What steps are taken in preparing for incapacity?
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1)Power of Attorney: meaning that you give someone else the capability to make decisions
*Standard: *Durable: appointed to take care of any legal or business matters in advance of the onset of any medical problems *Springing Durable: "jumps" into effect when a specified event has occured, ususallu medical incapacitation or disability 2)Advance Medical Directives *Health Care Power of Attorney *Living will: specifies what tyoe of medical treatment is desired |
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Life insurance needs insurance increases during your life time.
True or False |
False
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Life insurance needs decrease during you life time.
True or False |
False
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