Exam II Review Session

1
Exam II Review Session

• State Farm Car Policy Review
• U of I Student Health Policy Review
• Assignment 7
• Assignment 8
• Assignment 9
• Assignment 10

2
State Farm Car Policy
3
Brians Special Rules

• First decide what type of car it is and if it is
  covered
• Insurance follows the car, driver pays excess
• Spouses car is never covered
• Rental cars are covered up to 21 days
• Replacement cars covered for up to 30 days
• Additional Cars covered up to 30 days or until
  effective date of policy
• Know the flow chart for non-owned cars

4
Problem 1

• On September 30th, 2007, you trade in your 2001
  Sebring
• (with an Actual Cash Value of 12,000) for a new
  2007
• Range Rover that costs 85,000. On October 26th,
  2007,
• you let your spouse borrow your car. Your spouse
  has
• his/her own policy with Allstate with the same
  coverage
• limits as you have. On the highway, your spouse
  swerves
• off the road to avoid hitting a deer and crashes
  into a road
• sign, totaling your brand new Range Rover. Your
  policy
• will pay
• A. 0 B. 11,900 C. 84,900
• D. 85,000 E. None of the above

5
Problem 1 Answer

• Correct Answer C - 84,900
• This is a Newly Acquired Car Replacement Car
• Your State Farm Auto Policy will cover a
  replacement car within 30 days of its delivery.
• 85,000 Collision damage
• 100 deductible
• 84,900

6
Problem 2

• You are tanning on the beach one day when a car
  comes out of nowhere and runs over your leg. The
  driver of the car has a policy with Nationwide
  with liability limits of 50/100/25. You incur
  10,000 in medical bills and you would be
  entitled to a bodily injury award of 120,000.
  Your policy will pay
• A. 0 B. 10,000 C. C. 70,000
• D. 130,000 E. None of the above

7
Problem 2 - Answer

• C. 70,000
• You are COVERED because you are hit by a land
  motor vehicle with four wheels designed for use
  mainly on public roads (regardless of whenever
  you are off or on public roadways).
• You incur 120,000 of Bodily Injury
• The other cars insurance will pay up to its
  50,000 BI / person limit
• 120,000
• - 50,000
• 70,000 Underinsured Motor Vehicle coverage

8
YOU are ON Public Roadways YOU are OFF Public Roadways
Land motor vehicle designed for use mainly ON public roadways COVERED COVERED
Land motor vehicle designed for use mainly OFF public roadways COVERED NOT COVERED
9
Problem 3

• You and your Aunt Mary (who lives in Colorado)
  are on vacation in California. You borrow her
  car one day to go to the grocery store. On the
  way to the grocery store, you crash into another
  car and it is your fault. The other driver is
  entitled to a bodily injury award of 80,000 and
  his car incurs 11,000 of damage. You incur
  20,000 of medical bills and your Sebring is
  totaled (Actual Cash Value 12,000). Your
  policy will pay
• A. 0 B. 91,000 C. 111,000
• D. 122,900 E. None of the Above

10
Problem 3 - Answer

• D. 122,900
• Your Aunt Marys car is a non-owned car. She is
  not defined as a relative because she does not
  reside primarily with you.
• 80,000 BI Liability
• 11,000 PD Liability
• 20,000 Medical Payments
• 11,900 Collision (12,000100 Deductible)

11
Problem 4

• Your son just turned 16, and you let him borrow
  your Sebring. Backing out of the garage, he hits
  the garage door, runs over the mailbox, and hits
  your 5-yr old next door neighbor. The garage
  door costs 2,300 to fix, the mailbox costs 200
  to replace, and your 5-yr old neighbor incurs
  30,000 of medical bills and is entitled to a
  60,000 bodily injury settled. Your policy will
  pay
• A. 0 B. 60,000 C. 90,000
• D. 92,500 E. None of the above

12
Problem 4 - Answer

• B. 60,000
• Your son is an insured.
• 60,000 Bodily Injury is covered (includes the
  30,000 Medical Payments)
• Property damage to property you own are NOT
  covered.

13
Problem 5

• While on a camping trip, you park your car in a
  nearby parking lot. When you return a few days
  later, you notice that your trunk locks has been
  picked and your clothes and luggage has been
  stolen. It costs 2000 to replace your clothes
  and luggage the ACV was 1200. Your policy will
  pay
• 0 B. 200 C. 1200
• D. 2000 E. None of the above

14
Problem 5 - Answer

• A. 0
• The clothes and luggage are not covered. Clothes
  and luggage are only covered for theft if your
  entire car has been stolen.

15
Health Policy
16
Brians Health Strategy

1. Check to see if excluded p. 14 15
2. Inpatient or Outpatient
3. Easy way to tell is if have room and board
   charges, then inpatient
4. Check limits of coverage and deductible for each
   charge
5. If inpatient, calculate separately the
   In-Hospital Expense Benefit
6. Add everything together and make sure not over
   limits

17
Health Question 1

• You badly injure your ankle while rollerblading.
  You are hospitalized for 6 days and have surgery.
  You are billed 500 per day for hospital room
  and board, 10,000 for the surgeon, 2,500 for
  the assistant surgeon and 4,000 for the
  anesthesia (which is administered by a licensed
  Physican who remained in constant attendance
  during your operation).
• A) 0 B) 12,050 C) 24,100
• D) 24,500 E) None of the above

18
Health Question 1 Answer

• In-Hospital Expense Benefit
• 6 x 500 (room and board)
• 10,000 (x-rays)
• -100 (deductible)
• 12,900
• 80 x 10,000 2,900 10,900
• Inpatient
• 10,000 x .8 (surgeon) 2,500 x .8 (assistant
  surgeon) 4,000 x .8 (anesthesia) 13,200
• Total
• 10,900 13,200 24,100

19
Health Question 2

• You visit a doctor two times for a bad case of
  the flu. The doctor prescribes some medicine and
  performs some tests to see if you have
  meningitis, but fortunately you dont. You are
  billed 100 for each visit to the doctor, 200
  for the laboratory tests and 100 for the
  medicine.
• A) 0 B) 170 C) 200
• D) 280 E) None of the above

20
Health Question 3 Answer

• Outpatient - Medicine not covered
• 200 (each visit)
• 200 (laboratory tests)
• -150 (deductible)
• 250
• 250 x .8 200
• deductible applies once b/c same sickness p 4

21
Health Question 3

• You have an eye exam and get a new set of
  glasses. The exam costs 100 and the glasses
  cost 200.
• A) 0 B) 80 C) 120
• D) 240 E) None of the above

22
Health Question 3 Answer

• Exclusion
• Eye examinations and eyeglasses p 14 9
• Total
• 0

23
HW 7

• Coordination of Benefits
• Introduction to Life Insurance

24
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.

25
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

26
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

27
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

28
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

29
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

30
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

31
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

32
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

33
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

34
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

35
Assignment 8

• Life Insurance

36
Table of Guaranteed Values
End of Policy Year August 1, Cash Value Paid-Up Insurance 100,000 Extended Term Insurance to
10 2005 11,411 37,400 Oct 13, 2023
11 2006 12,933 40,600 Aug 15, 2025
37
Problem 1

• John surrenders the policy on August 1, 2005, and
  selects the paid-up insurance option. If he dies
  in a fire on May 9, 2035, how much will his wife
  Jane receive from the insurance company?
• 0
• 19,629
• 37,400
• 100,000
• None of the above

38
Problem 1

• John surrenders the policy on August 1, 2005, and
  selects the paid-up insurance option. If he dies
  in a fire on May 9, 2035, how much will his wife
  Jane receive from the insurance company?
• 0
• 19,629
• 37,400
• 100,000
• None of the above

39
Problem 2

• John Doe pays his first ten annual premiums on
  time, but then decides he no longer wants to pay
  premiums. Thus, he stops paying at that point.
  If John dies on August 30, 2025, how much will
  his wife Jane receive from the insurance company?
• 0
• 40,600
• 43,700
• 100,000
• None of the above

40
Problem 2

• John Doe pays his first ten annual premiums on
  time, but then decides he no longer wants to pay
  premiums. Thus, he stops paying at that point.
  If John dies on August 30, 2025, how much will
  his wife Jane receive from the insurance company?
• 0
• 40,600
• 43,700
• 100,000
• None of the above

41
Problem 3

• Assume that the company paid a total of 5,000 in
  dividends in the first ten years. If John Doe
  surrenders the policy on August 1, 2005, for the
  cash value, how much of the proceeds will be
  taxable income for him?
• -3,919
• 0
• 1,081
• 11,411
• None of the above

42
Problem 3

• Assume that the company paid a total of 5,000 in
  dividends in the first ten years. If John Doe
  surrenders the policy on August 1, 2005, for the
  cash value, how much of the proceeds will be
  taxable income for him?
• -3,919
• 0
• 1,081
• 11,411
• None of the above

43
Problem 4

• If John had lied about his gender and said he was
  a female when he bought the life insurance policy
  in 1995, which of the following would happen if
  he died on October 18, 2007, and the insurance
  company then found out he was actually a male?
• The insurance company would have to pay Jane the
  full benefit because it only had two years to
  cancel the policy.
• The insurance company will adjust the death
  benefit to reflect the actual gender of John.
• The insurance company wont pay any benefit to
  Jane because John lied about a material fact and
  therefore a valid contract never existed..
• None of the above

44
Problem 4

• If John had lied about his gender and said he was
  a female when he bought the life insurance policy
  in 1995, which of the following would happen if
  he died on October 18, 2007, and the insurance
  company then found out he was actually a male?
• The insurance company would have to pay Jane the
  full benefit because it only had two years to
  cancel the policy.
• The insurance company will adjust the death
  benefit to reflect the actual gender of John.
• The insurance company wont pay any benefit to
  Jane because John lied about a material fact and
  therefore a valid contract never existed..
• None of the above

45
Problem 5

• John Doe terminates his life insurance policy on
  August 1, 2006, and selects the paid up insurance
  option. John dies of illness on January 17, 2018.
  If his wife Jane has an adjusted age of 65 at
  this point, what is the minimum payment she will
  receive if she elects to receive a life income
  with 10 years certain?
• 199
• 202
• 205
• 221
• None of the above

46
Problem 5

• John Doe terminates his life insurance policy on
  August 1, 2006, and selects the paid up insurance
  option. John dies of illness on January 17, 2018.
  If his wife Jane has an adjusted age of 65 at
  this point, what is the minimum payment she will
  receive if she elects to receive a life income
  with 10 years certain?
• 199
• 202
• 205
• 221
• None of the above
• (40,600 / 1,000) x 4.89 199

47
Homework 9

• Life Insurance Cost Comparisons
• Liability Exposures

48
Whole Life Policy for 30 year old male

• Face Amount 200,000
• Annual Premium 4,200
• Dividends
• in year 20 2,500
• first 20 years in total 25,000
• Cash Values
• end of 19th year 80,000
• end of 20th year 87,000
• Accumulated Value of Dividends at
• the end of 20 years at 6.5 40,000

49
Question 1

• What is the traditional net cost index per 1,000
  of coverage?
• A. -10.75
• B. -8.50
• C. -7.00
• D. 8.50
• E. None of the above

50
Question 1 - Answer

• ANSWER C
• Premiums Paid (20 x 4200) 84,000
• -Dividends Received -25,000
• -Cash Value at end of period -87,000
• Net Cost -28,000
• (Years x Policy Face per 1,000) (20 x
  200) 4,000
• Traditional Net Cost Index -7.00

51
Question 2

• What is the 20 year interest adjusted surrender
  cost index per 1,000 of coverage based on a 6.5
  percent interest rate?
• A. 1.71
• B. 5.64
• C. 7.46
• D. 11.67
• E. None of the above

52
Question 2 - Answer

• ANSWER B
• Annuity due factor (1i)(n1) - (1i)
  (1.065)(21) - (1.065) 41.349
  i 0.065
• Premiums at Interest (4200 x 41.349) 173,666
• -Dividends at Interest -40,000
• -Cash Value at end of period -87,000
• Interest Adjusted Cost Cost 46,666
• (ADF x Policy Face per 1,000) (41.349 x
  200) 8,270
• Traditional Net Cost Index 5.64

53
Question 3

• What is the yearly rate for the 20th policy year
  if the annual renewable term rate for this
  individual is 2.00 per 1,000?
• A. 1.1
• B. 6.6
• C. 6.8
• D. 10.6
• E. None of the above

54
Question 3 - Answer

• ANSWER B
• Yearly Rate of Return for Policy Year t
• CVt Dt (YPt)(Ft - CVt)(.001) - 1
• Pt CVt-1
• CV cash value
• D dividends
• YP yearly price per 1000 of renewal term
• F death benefit
• P premium paid at beginning of year
• Yearly Rate of Return for Policy Year 20
• 87,000 2,500 (2.00)(200,000 87,000)(.001)
  - 1 6.6
• 4,200 80,000

55
Question 4

• Which types of damages are covered under the
  Coverage A Liability section of the State Farm
  Car policy covered in class?
•  
• I. Special Damages
• II. General Damages
• III. Punitive Damages
•  
• A. I only B. I and II C. I and III
• D. I, II and III E. None of the above

56
Question 4 - Answer

• ANSWER D
• The liability coverage in your State Farm Auto
  Policy will pay special, general, and punitive
  damages. The policy states
• We will pay damages which an insured becomes
  legally liable to pay because of
• a. bodily injury to others, and
• b. damage to or destruction of property
  including loss of its use
• (page 6)

57
Question 5

• Under which of the following provisions could you
  be held liable for the negligent acts of another
  person?
• A. Contributory negligence
• B. Last Clear Chance
• C. Strict Liability
• D. Sovereign immunity
• E. Vicarious liability

58
Question 5

• CORRECT ANSWER E
• Vicarious liability is, by definition, one
  person being held liable for the acts of another

59
Homework 10 Review

• By Bill

60
Problem 1

• Your son and his friends are playing basketball
  in your backyard. One of your sons friends
  fragrantly fouls another friend, resulting in a
  broken arm. The hurt friend incurs 3,000 in
  medical bills. Your sons friend sues you as
  owner of the house, but you are not found liable.
• A. 0
• B. 750
• C. 1,000
• D. 3,000
• E. None of the above

61
Problem 1 - Answer

• Correct Answer C. 1,000
• Explanation
• Your sons friend incurred 3,000 in medical
  bills. Therefore, he will receive 1,000 because
  this is the maximum amount your medical payments
  coverage will pay per person per incident.

62
Problem 2

• Tired of outrageous winter heating bills you turn
  off your heating system and board a plane for
  Hawaii. Upon your return home a month later you
  find the basement flooded due to pipes that had
  frozen. It costs 5,000 to fix the plumbing,
  7,000 for new basement carpet, and 5,500 to
  replace the basement furniture (ACV 3,500).
• A. 0
• B. 10,250
• C. 10,500
• D. 15,250
• E. None of the above

63
Problem 2 - Answer

• Correct Answer A. 0
• Explanation
• Your plumbing, basement carpet, and basement
  furniture are not covered. You turned off the
  heat in your house, which contributed to the
  freezing of your pipes and the flooding of your
  basement. Thus, Page 674 14 applies.

64
Problem 3

• One day you find you home broken into but all
  that is missing is the laptop you use for work.
  It cost 4,000 to replace the computer (ACV
  3,000) and 2,000 to reconstruct the client
  database you had stored on the computer.
• A. 0
• B. 2,500
• C. 2,750
• D. 4,750
• E. None of the above

65
Problem 3 - Answer

• Correct Answer B. 2,500
• Explanation Your laptop is covered by personal
  property, but the cost to reconstruct the client
  database is not covered. Please see Page 668 8
  and Page 669 8. This is what the calculation
  look like.
• Personal Property
• 3,000 ? ACV laptop
• - 250 ? Deductible
• 2,750
• ?
• 2,500 ? Policy limit

66
Problem 4

• Your sons hamster escapes from its cage and
  starts gnawing at some electrical wiring
  underneath your computer. The wires short and
  start a fire, which completely destroys you home
  and everything inside. It cost 90,000 to rebuild
  your home. The ACV of your home was 80,000. It
  cost 75,000 to replace your personal property
  (ACV 55,000). While rebuilding, you rent an
  apartment for 8 months at 1,000 a month. It
  costs 20 for a new hamster.
• A. 138,000
• B. 138,020
• C. 148,000
• D. 152,750
• E. None of the above

67
Problem 4 - Answer

• Correct Answer C. 148,000
• Explanation
• Your home, personal property, and rent are
  covered, but your hamster is not covered. Please
  see Page 669 2. This is what the calculation
  looks like.
• Personal Property Dwelling Loss of Use
• 55,000 ? ACV property 90,000 ? home 8,000
  ? rent
• - 250? deductible Total
• 54,750 50,000 ? Personal property
• ? 90,000 ? Dwelling
• 50,000 ? policy limit 8,000 ? Loss of Use
• 148,000 ? Total