Fin 230 Review Session

1
Fin 230 Review Session

• Exam 2

Brian Alvin balvin2_at_uiuc.edu Bryan Brooks
bbrooks1_at_uiuc.edu Brett Engel bengel_at_uiuc.edu Aman
da Kastle kastle_at_uiuc.edu Katie Kimble
kkimble2_at_uiuc.edu Laura Nemeth lnemeth2_at_uiuc.edu
2
Overview

• Auto and Health Policy Review
• Reduction of Benefits (HW 7)
• Life Insurance
• Types (HW 7)
• Benefits (HW 8)
• Cost Comparisons (HW 9)
• Liability Exposures (HW 9)
• Homeowners Insurance (HW 10)

3
Auto Review
4
Auto Review

• Your daughter lives with you and has her own car.
  Since her insurance premiums have increased
  substantially, she decides to cancel her car
  insurance on October 10, 2006, but she doesnt
  tell you this. You borrow her car on October
  20,2006. While driving her car, you run into a
  tree, injuring yourself and her car. Your medical
  bills are 30,000. It costs 10,400 to repair
  your daughters car the Actual Cash Value of her
  car before the accident was 9,000.
• 0
• 33,900
• 35,300
• 38,900
• None of the above

5
Auto Review

• Your daughter lives with you and has her own car.
  Since her insurance premiums have increased
  substantially, she decides to cancel her car
  insurance on October 10, 2006, but she doesnt
  tell you this. You borrow her car on October
  20,2006. While driving her car, you run into a
  tree, injuring yourself and her car. Your medical
  bills are 30,000. It costs 10,400 to repair
  your daughters car the Actual Cash Value of her
  car before the accident was 9,000.
• 0
• 33,900
• 35,300
• 38,900
• None of the above

6
Auto Review

• You borrow your neighbors car, which is covered
  under a policy with Firemans Fund with the same
  coverages and limits you have on your car. You
  lose control of the car and hit a pedestrian. The
  pedestrian sues you and wins a bodily injury
  award of 250,000.
• 0
• 25,000
• 100,000
• 150,000
• None of the above

7
Auto Review

• You borrow your neighbors car, which is covered
  under a policy with Firemans Fund with the same
  coverages and limits you have on your car. You
  lose control of the car and hit a pedestrian. The
  pedestrian sues you and wins a bodily injury
  award of 250,000.
• 0
• 25,000
• 100,000
• 150,000
• None of the above

8
Auto Review

• While on a two week vacation in Los Angeles, you
  rent a car. You decline the insurance coverage
  offered by the rental agency. On the last day of
  your vacation, you run into a low hanging branch,
  breaking the front windshield and damaging the
  hood. It costs 600 to replace the windshield and
  1,500 to repair the hood. The rental agency
  holds you responsible for the loss.
• 0
• 600
• 2,000
• 2,100
• None of the above
• Answer in the lectures notes for non-owned
  cars

9
Auto Review

• While on a two week vacation in Los Angeles, you
  rent a car. You decline the insurance coverage
  offered by the rental agency. On the last day of
  your vacation, you run into a low hanging branch,
  breaking the front windshield and damaging the
  hood. It costs 600 to replace the windshield and
  1,500 to repair the hood. The rental agency
  holds you responsible for the loss.
• 0
• 600
• 2,000
• 2,100
• None of the above
• Answer in the lectures notes for non-owned
  cars

10
Health Policy Review
11
Health Policy Review

• While hiking in the mountains of Colorado, you
  trip and knock yourself unconscious. An air
  ambulance flies you to the nearest hospital
  emergency room. The doctor does an X-ray and CT
  scan on you, and finds out that you are able to
  go home to recuperate. You are billed 2,000 for
  air ambulance, 750 for the CT scan, 200 for the
  x-rays and 300 for the treatment in the
  emergency room.
• 0
• 1,090
• 1,840
• 2,000
• None of the above

12
Health Policy Review

• While hiking in the mountains of Colorado, you
  trip and knock yourself unconscious. An air
  ambulance flies you to the nearest hospital
  emergency room. The doctor does an X-ray and CT
  scan on you, and finds out that you are able to
  go home to recuperate. You are billed 2,000 for
  air ambulance, 750 for the CT scan, 200 for the
  x-rays and 300 for the treatment in the
  emergency room.
• 0
• 1,090
• 1,840
• 2,000
• None of the above

13
Health Policy Review

• You failed your goal-setting project for Fin 230
  and realize that everyone else got As. You are
  really depressed and want to snap out of your
  depression. You see a psychiatrist 2 times each
  week for a year. Each session with your
  psychiatrist costs you 90/visit
• 0
• 1,575
• 4,680
• 7,488
• None of the above

14
Health Policy Review

• You failed your goal-setting project for Fin 230
  and realize that everyone else got As. You are
  really depressed and want to snap out of your
  depression. You see a psychiatrist 2 times each
  week for a year. Each session with your
  psychiatrist costs you 90/visit
• 0
• 1,575
• 4,680
• 7,488
• None of the above

15
Health Policy Review

• After you have been waiting for 4 years for a new
  kidney, doctors finally find one. You are
  charged 500 a day for the hospital room, 30,000
  for the operating room, 45,000 in drugs
  supplies. The surgeon charges you 100,000 and
  the assistant surgeon charges you 50,000. You
  stay in the hospital for 25 days.
• 0
• 177,900
• 185,400
• 187,500
• None of the above

16
Health Policy Review

• After you have been waiting for 4 years for a new
  kidney, doctors finally find one. You are
  charged 500 a day for the hospital room, 30,000
  for the operating room, 45,000 in drugs
  supplies. The surgeon charges you 100,000 and
  the assistant surgeon charges you 50,000. You
  stay in the hospital for 25 days.
• 0
• 177,900
• 185,400
• 187,500
• None of the above (205,400)

17
HW 7
18
Use for questions 1 2

• You are driving your car along Green Street when
  a squirrel darts out in front of your car. You
  swerve to avoid hitting the animal, but you lose
  control and crash into a light pole. An
  ambulance races you to Carle Hospital where you
  are hospitalized for 20 days and undergo
  extensive surgery. The surgeon charges you
  40,000 for the surgery, the assistant surgeon
  charges 9,000 and the anesthesia costs 20,000.
  The anesthetist personally administered the
  anesthesia and remained in constant attendance
  during the surgery. You are billed 500 per day
  for the hospital room and board, 5,000 for the
  operating room expenses and 2,500 for medicine
  while in the hospital. You are billed 500 for
  the ambulance ride. It costs 9,000 to repair
  your car, which had a 15,000 cash value at the
  time of the loss.

19
Health Insurance

• What is the Initial Benefit Payment under the U
  of I Undergraduate Student Insurance Plan?
• 0
• 35,500
• 35,825
• 42,450
• None of the above

20
Health Insurance

• What is the Initial Benefit Payment under the U
  of I Undergraduate Student Insurance Plan?
• 0
• 35,500
• 35,825
• 42,450
• None of the above

21
Health Insurance

• What is the Total Payment the U of I
  Undergraduate Student Insurance Plan will make on
  this loss?
• 0
• 53,100
• 62,000
• 71,000
• None of the above

22
Health Insurance

• What is the Total Payment the U of I
  Undergraduate Student Insurance Plan will make on
  this loss?
• 0
• 53,100
• 62,000
• 71,000
• None of the above

23
Life Insurance

• Based on the Commissioners 1980 Standard
  Mortality Table (Appendix F in the text), how old
  would a male be when he lived has lived half his
  total life expectancy (within 1 year)?
• 24
• 37
• 39
• 50
• None of the above

24
Life Insurance

• Based on the Commissioners 1980 Standard
  Mortality Table (Appendix F in the text), how old
  would a male be when he lived has lived half his
  total life expectancy (within 1 year)?
• 24
• 37
• 39
• 50
• None of the above

25
Life Insurance

• A 30-year-old female purchased a 100,000 whole
  life policy for 1,500 a year. She receives
  dividends of 5,000 over time. At age 60, she
  surrenders that policy for 70,000. If this
  individual is in the 28 tax bracket at that
  point, how much does she have to pay in taxes
  when she surrenders the policy?
• 0
• 5,600
• 8,400
• 30,000
• None of the above

26
Life Insurance

• A 30-year-old female purchased a 100,000 whole
  life policy for 1,500 a year. She receives
  dividends of 5,000 over time. At age 60, she
  surrenders that policy for 70,000. If this
  individual is in the 28 tax bracket at that
  point, how much does she have to pay in taxes
  when she surrenders the policy?
• 0
• 5,600
• 8,400
• 30,000
• None of the above

27
Life Insurance

• Which of the following would be the most
  appropriate for an individual who is looking for
  a tax sheltered investment and is willing to
  accept risk in hopes of a higher return?
• Re-entry term
• Endowment life
• Whole life
• Yearly renewable term
• Variable life

28
Life Insurance

• Which of the following would be the most
  appropriate for an individual who is looking for
  a tax sheltered investment and is willing to
  accept risk in hopes of a higher return?
• Re-entry term
• Endowment life
• Whole life
• Yearly renewable term
• Variable life

29
HW 8
30

• If an individual wants no uncertainty in an
  insurance policy, which type of life insurance
  would he or she be most comfortable with?
• Variable Life
• Universal Life
• Whole Life
• Variable Universal
• Re-entry Term

31

• If an individual wants no uncertainty in an
  insurance policy, which type of life insurance
  would he or she be most comfortable with?
• Variable Life
• Universal Life
• Whole Life
• Variable Universal
• Re-entry Term

32

• John surrenders the policy on August 1, 2003 and
  selects the paid up insurance option. If he dies
  in a fire on August 15, 2019, how much will his
  wife Jane receive from the insurance company?
• 0
• 8,528
• 30,500
• 100,000
• None of the above

33

• John surrenders the policy on August 1, 2003 and
  selects the paid up insurance option. If he dies
  in a fire on August 15, 2019, how much will his
  wife Jane receive from the insurance company?
• 0
• 8,528
• 30,500
• 100,000
• None of the above

34

• John Doe pays his first five premiums on time,
  but then he gets amnesia and forgets to pay the
  rest of the premiums. If John dies on October
  31, 2010, how much will his wife Jane receive
  from the insurance company?
• 0
• 4,588
• 18,700
• 100,000
• None of the above

35

• John Doe pays his first five premiums on time,
  but then he gets amnesia and forgets to pay the
  rest of the premiums. If John dies on October
  31, 2010, how much will his wife Jane receive
  from the insurance company?
• 0
• 4,588
• 18,700
• 100,000
• None of the above

36

• John dies on August 7, 2046 from old age. His
  wife Jane with an adjusted age of 85 elects to
  receive joint and survivor life income with her
  son, Tom, who has an adjusted age of 60. What is
  the minimum monthly benefit they will receive?
• 0
• 4.40
• 440
• 480
• None of the above

37

• John dies on August 7, 2046 from old age. His
  wife Jane with an adjusted age of 85 elects to
  receive joint and survivor life income with her
  son, Tom, who has an adjusted age of 60. What is
  the minimum monthly benefit they will receive?
• 0
• 4.40
• 440
• 480
• None of the above

38

• If John Doe had lied on the policy application
  about his health, but the insurance company did
  not find out about the lie until Johns death on
  August 1, 2005, how much would Jane receive as a
  benefit?
• 0
• 11,411
• 15,330
• 100,000
• None of the above

39

• If John Doe had lied on the policy application
  about his health, but the insurance company did
  not find out about the lie until Johns death on
  August 1, 2005, how much would Jane receive as a
  benefit?
• 0
• 11,411
• 15,330
• 100,000
• None of the above

40
HW 9
41
Life Insurance Cost Comparisons

• Use the following information for the next 5
• questions about a Whole Life policy
• Face amount 275,000
• Annual Premium 3,700
• Dividends
• In year 20 3,575
• First 20 years total 19,500
• Cash Values
• End of 19th year 74,000
• End of 20th year 81,000
• Accumulated Value of Dividends at
• The end of 20 years at 7.25 48,250

42
Traditional Net Cost

• What is the 20 year traditional net cost
• index per 1,000 of coverage?
• -7.64
• -4.82
• -3.55
• 1.14
• None of the above

43
Traditional Net Cost

• What is the 20 year traditional net cost
• index per 1,000 of coverage?
• -7.64
• -4.82
• -3.55
• 1.14
• None of the above

44
Interest Adjusted Surrender Cost

• What is the 20 year interest adjusted surrender
• cost index per 1,000 of coverage based on a
• 7.25 interest rate?
• 2.09
• 3.05
• 3.61
• 6.76
• None of the above

45
Interest Adjusted Surrender Cost

• What is the 20 year interest adjusted surrender
• cost index per 1,000 of coverage based on a
• 7.25 interest rate?
• 2.09
• 3.05
• 3.61
• 6.76
• None of the above

46
Interest Adjusted Net Payment Cost

• What is the 20 year interest adjusted net payment
• cost index per 1,000 of coverage based on a
• 7.25 interest rate?
• 6.47
• 9.57
• 11.89
• 12.65
• None of the above

47
Interest Adjusted Net Payment Cost

• What is the 20 year interest adjusted net payment
• cost index per 1,000 of coverage based on a
• 7.25 interest rate?
• 6.47
• 9.57
• 11.89
• 12.65
• None of the above

48
Interest Adjusted Net Payment Cost

• What is the 20 year equivalent annual dividend
  per
• 1,000 of coverage based on a 7.25 interest
  rate?
• 1.57
• 5.88
• 10.68
• 13.45
• None of the above

49
Interest Adjusted Net Payment Cost

• What is the 20 year equivalent annual dividend
  per
• 1,000 of coverage based on a 7.25 interest
  rate?
• 1.57
• 5.88
• 10.68
• 13.45
• None of the above (3.88)

50
Yearly Rate of Return

• What is the yearly rate of return for the 20th
  policy year
• if the annual renewable term rate for this
  individual is
• 1.65 per 1,000?
• 0.2
• 4.7
• 9.3
• 30.2
• None of the above

51
Yearly Rate of Return

• What is the yearly rate of return for the 20th
  policy year
• if the annual renewable term rate for this
  individual is
• 1.65 per 1,000?
• 0.2
• 4.7
• 9.3
• 30.2
• None of the above

52
HW 10
53
For the following questions, assume that you have
both the Homeowners Policy described in Appendix
A of your textbook and the State Farm Car Policy,
including the Declarations page, handed out in
class. For the Homeowners Policy, assume the
policy limits exceed 80 of the replacement cost
of the house. Also, use the following
information as a sample Declarations page for the
Homeowners Policy.
54
Type of Coverage Limits of Liability
Cov A Dwelling 100,000 Cov B Other
Structure 10 of Cov A limit Cov C Personal
Property 50,000 Cov D Loss of Use Actual
Loss Sustained Cov E Personal
Liability 100,000 (per occurrence)
Cov F Medical Payments 1,000
(per person)
55
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall
and then lands on your antique clock destroying
it. It costs 1500 to replace the clock (ACV
1000) and 300 to repair the wall.

• 0 D. 1,550
• 50 E. None of the above
• 1,050

56
While you are away, your teenage son and his
friends set up an indoor basketball court in the
living room. An errant shot dents the drywall
and then lands on your antique clock destroying
it. It costs 1500 to replace the clock (ACV
1000) and 300 to repair the wall.

• 0 D. 1,550
• 50 E. None of the above
• 1,050

57
While you are sitting at home an earthquake hits
your town. It destroys your house, which had a
replacement cost of 100,000, your personal
property, which had a replacement cost of 50,000
and an ACV of 40,000, and your car, which had an
ACV of 15,000. You are also injured and go to
the emergency room for treatment. You are billed
200 for the visit.

• 0 D. 154,750
• 15,000 E. None of the above
• 15,200

58
While you are sitting at home an earthquake hits
your town. It destroys your house, which had a
replacement cost of 100,000, your personal
property, which had a replacement cost of 50,000
and an ACV of 40,000, and your car, which had an
ACV of 15,000. You are also injured and go to
the emergency room for treatment. You are billed
200 for the visit.

• 0 D. 154,750
• 15,000 E. None of the above
• 15,200

59
While you are out of your house, a burglar breaks
down a door and steals your television set and
your watch. The TV has a replacement value of
800 and an Actual Cash Value of 500. Your
watch has a replacement value of 2500 and an
Actual Cash Value of 1500. It costs 500 to
repair the door.

• 1,750 D. 2,300
• 2,000 E. None of the above
• 2,250

60
While you are out of your house, a burglar breaks
down a door and steals your television set and
your watch. The TV has a replacement value of
800 and an Actual Cash Value of 500. Your
watch has a replacement value of 2500 and an
Actual Cash Value of 1500. It costs 500 to
repair the door.

• 1,750 D. 2,300
• 2,000 E. None of the above
• 2,250

61
Your neighbor was over in your yard enjoying a
backyard fire you had started. Your neighbor
started running around to get away from a wasp,
when he falls into the fire, burning himself. He
incurs 15,000 in medical bills. He sues you,
but you are not held liable for his injuries.

• 0 D. 15,000
• 750 E. None of the above
• 1,000

62
Your neighbor was over in your yard enjoying a
backyard fire you had started. Your neighbor
started running around to get away from a wasp,
when he falls into the fire, burning himself. He
incurs 15,000 in medical bills. He sues you,
but you are not held liable for his injuries.

• 0 D. 15,000
• 750 E. None of the above
• 1,000

63
You fall asleep while smoking in bed, and wake up
on fire. Although you escape, your house burns
to the ground. The replacement cost of your
house is 120,000, the ACV is 90,000. The
replacement cost of your personal property is
60,000, the ACV is 40,000. You incur 30,000
in medical bills for skin grafts.

• 0 D. 165,000
• 129,750 E. None of the above
• 139,750

64
You fall asleep while smoking in bed, and wake up
on fire. Although you escape, your house burns
to the ground. The replacement cost of your
house is 120,000, the ACV is 90,000. The
replacement cost of your personal property is
60,000, the ACV is 40,000. You incur 30,000
in medical bills for skin grafts.

• 0 D. 165,000
• 129,750 E. None of the above
• 139,750