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35 Cards in this Set
- Front
- Back
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Unit Pricing
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Unit pricing provides a standard of measurement
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Purchasing Economics (Prepaying)
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Do I prepay?
Calculate the interest rate implicit in deal, accept prepay if you are investing money at a lower rate and have enough cash…don’t forget risk differences Pest contract $360 annual; $30/month (end of month) or 10% discount if paid today End mode Pmt/yr =12 PV = negative 324 (being 360 times 90%) Pmt = 30 N = 12 FV = 0 Solve for I = 19.9% |
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Warrenties and Service Contracts
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Look up in ch. 8 pg. 248
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Consumer Complaints
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Take legal action
Small claims court Class action suits Use a lawyer Other legal alternatives Legal aid society Prepaid legal services Research legal questions at www.nolo.com |
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Used vs. New Cars
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Save 88,000 over 66 years and
438,000 with invested interest over 66 years. |
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Calculate Car Problems
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See HW and ppt
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Lease vs. Buy
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Lease:
Advantages Small cash outflow Lower monthly payments than buying Lease provides detailed records Disadvantages No ownership interests Must meet requirements May have additional costs (e.g. mileage) |
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Mortgage Financing
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ARMs
Lower initial interest rates vs. fixed Teaser rate mortgages are latest trend Rates will move up or down when interest rates change after set period (1yr/3yr/5yr) subject to caps If rates go up later, could refinance another ARM Recurring closing costs can add up over time If home value falls, unable to refinance Fixed Higher initial rates Total payment will not vary No increase if rates go up No decrease if rates go down (requires refinancing) |
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How much home can you afford?
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Your lifestyle and your choice of housing
Traditional guidelines suggest housing payments (PITI) are no more than 33% of gross income, with all debt payments not exceeding 38% of gross income No more than 2 1/2 times your annual income Target 10-20% down payment See textbook pages 290-291 for illustrations on how to calculate the mortgage and house you can afford |
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Mortgage Problems
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See ppt examples
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CH. 10 Vocab Words
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Study all
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Risk Management Methods
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Risk Avoidance-not driving
Risk Reduction-wearing a seatbelt Risk Assumption-responsible for loss Risk Shifting-shift risk to insurance company |
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Insurence Program Steps
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1.Set your insurance goals and prioritize them
2.Develop a plan to reach your goals 3.Put your plan into action 4.Review your results To put your risk management plan to work ask yourself… What should be insured? For how much? What kind of insurance? From whom? |
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HomeOwner's Generally Covers:
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Homeowners insurance is coverage for a residence and its associated financial risks
Buildings and other structures, plus trees, shrubs Additional living expenses Personal property floaters Needed for expensive items Jewelry, antiques, electronics Property lists and pictures help Endorsement for specialized coverages Flood Earthquake Hurricanes – 2% deductible Medical payments for minor injuries on your property Personal liability Umbrella Policy- Also called a personal catastrophe policy Supplements basic personal liability coverage (home/auto) $1,000,000 or more in liability coverage Are your parents covered? |
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Actual vs. Replacement Value
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Actual cash value - cost less depreciation
Replacement cost - repair or replace with new item |
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Bodily Injury Liability
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Bodily injury liability covers the risk of financial loss due to legal expenses, medical expenses, lost wages and other expenses associated with injuries caused by an accident for which you were responsible
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Medical Payments Coverage
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Medical payments covers the cost of health care for persons injured in your automobile, including yourself
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Motor Vehicle Liability Coverage Number Meanings xx/xx/xx
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1st- limit paid to one person
2nd-limit paid to all in accident 3rd-limit for damage property of others payment |
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Auto Insurence Premium Factors
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Automobile type
Year, make and model Rating territory Accident, theft, and vandalism rates in the area where you live Driver classification Age, sex, marital status, credit history, driving record, and driving habits Assigned risk pool for people who are unable to obtain insurance |
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Reduce Auto Insurance Premiums
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Find out how much it will cost to insure a car before you buy it
Compare companies - www.insuremarket.com Have larger deductibles Look for discounts Establish and maintain a good driving record Non-smoker Install security devices such as a car alarm If you have more than one vehicle insure them both with the same company |
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Health Insurance Major Issues
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Solving the health care crisis:
Required coverage? Medical savings accounts? Tort reform? Rising RX costs? New Medicare RX benefits? Market based reforms vs. traditional plans Impact of new programs on economy and deficit??? |
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Good Health Insurance Policy Aspects
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Offer basic coverage for hospital and doctor bills
Cover at least 120 days’ hospital room and board At least $1,000,000 lifetime maximum/person Pay at least 80% of out-of-hospital expenses after the yearly deductible is met Impose no unreasonable exclusions Limit your out-of-pocket expenses to no more than $4,000 to $6,000 in a year, excluding dental, optical and prescription costs Have no unreasonable exclusions Limit out-of-pocket expenses |
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Ch. 11 Terms
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Study All
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Disability Insurance Types
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Employer
Group disability policy may be short or long term but usually not enough by itself Social Security (OASDI) For disabilities that lasts more than one year Workman’s Compensation If you are injured at work Disability insurance You get it to supplement other income sources to achieve 70-80% of your take home pay |
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Medicare vs. Medicaid
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Medicare - federal program for those age 65 and older, and certain disabled persons
Part A - compulsory Covers hospital costs including doctor Part B - voluntary Doctor’s office visits & prescriptions Medigap - may pay what Medicare doesn’t Medicaid Low income people of all ages State administered with federal guidelines |
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COBRA
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requires many employers to offer employees and dependents to continue their group coverage for a set period of time following a divorce. However, the premiums can be as high as $10,000 a year
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Term vs. Whole
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Term life insurance
Protection for a specified period of time No cash value build up, pure insurance coverage If you don’t pay premiums, coverage stops A renewability option means that at the end of the term you can renew the policy without having a physical Conversion option allows you to change your policy from term to whole life without a physical With decreasing term insurance your premium stays the same, but the amount of coverage decreases as you age Whole life insurance also called straight life You pay a premium as long as you live Amount of premium depends on your age when you start the policy Much higher premiums compared to term life Provides death benefits and accumulates a cash value (higher premiums are invested on your behalf) You can borrow against the cash value or draw it out at retirement Look carefully at the rate of return your money earns |
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Easy Method
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Typically, you will need 70% of your salary for seven years while family adjusts
Current income X 7 X 70% or 4.9 X income A common estimate is 5 times income |
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DINK
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Calculate total debts
Divide by 2 Add funeral cost Essentially pays off your share of debts and incremental costs of your death |
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Family Need Method
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More thorough than the first three because it also considers employer provided insurance, Social Security benefits, and income and assets
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Two Types of Life Insurance Companies
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Stock life insurance companies are owned by the shareholders
95% are of this type Sell non-participating whole life policies Premium stays the same Also sell term life policies Mutual life insurance companies Owned by the policyholders 5% of policies are from this type of company With participating whole life policies the premiums are higher than non-participating policies. However part of the premium is refunded to the policyholders annually. This is called a policy refund Also sell term life policies |
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Universal vs. Variable Life
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Adjustable
You can change your policy as your needs change. For example, you can change your premium payments or the period of coverage Universal life Lets you pay premiums in almost any amount Combines term insurance and investment elements of money market type funds |
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Life Insurance Contract Provisions
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Naming your beneficiary, and contingent beneficiaries
Length of grace period for late payments Reinstatement of a lapsed policy if it has not been turned in for cash (whole life) Suicide clause during first two years Automatic premium loans (whole life) Uses the accumulated cash value to pay the premium if you do not pay it in time Misstatement of age provision |
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Key to Successful Investing
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The key to successful investing is diversification, asset class allocation, and appropriate use of taxable, tax deferred and tax free accounts.
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Things to Avoid in Investing
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Telephone brokers
Expensive seminars Get rich quick schemes Rumors and tips Insider rules apply to you too Borrowing on the margin to invest Risky investments (options, futures) High cost brokers and advisors |
