CSM 204- Exam 4 Study Guide
CSM 204- Exam 4 Study Guide CSM 204
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This 8 page Study Guide was uploaded by Kristen Marie on Sunday April 19, 2015. The Study Guide belongs to CSM 204 at University of Alabama - Tuscaloosa taught by Caroline Fulmer in Spring2015. Since its upload, it has received 294 views. For similar materials see Intro to Personal Finance Planning in Consumer Education at University of Alabama - Tuscaloosa.
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Date Created: 04/19/15
CSM 204 Exam 4 Review Sheet 1 Definitions types and examples of risk peril and hazard a b C Risk i Chance of uncertainty or loss also used to mean quotthe insured ii Types of Risk 1 Speculative risk a Chance of gain or loss b Uninsurable 2 Pure risk a Only chance of loss b Accidental or unintentional c Can be predictable in nature Peril i The cause of a possible loss ii Fire windstorms explosions robbery accidents and premature death Hazard i A factor that increases the likelihood of loss through some peril ii Defective house wiring not having car insurance 2 Risk management methods a b C d Risk avoidance i Avoiding the possibility of risk ii Not driving or being a passenger Risk reduction i Lowering the change of risk ii Wearing a seatbelt Risk assumption i Taking on responsibility for the loss or injury that make result from risk ii Not purchasing collision on an older car bearing the risk of repairs Risk shifting i Transferring risk ii Use of insurance policy 3 Liability negligence and vicarious liability a b C Liability i Legal responsibility for the financial cost of another person s losses or injuries Negligence i Failure to take ordinary or reasonable care in a situation Vicarious i A situation in which a person is held legally responsible for the actions of another person 4 Home owners coverages rhmchcrsn House and other structures Additional living expenses Personal property Personal property floater Household inventory Perils not usually covered i Need special coverage 1 Flood 2 Earthquake 3 War 4 Nuclear accidents Additional coverages i Check card fraud forgery and counterfeit money ii Cost of removing damaged property iii Temporary repairs iv Fire department charges Renters insurance a Personal property loss or damage b Additional living expenses c Personal liability d Many renters have no insurance e Building owner s policy will not cover personal property Financial responsibility laws a State legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident Automobile insurance coverages a No fault insurance i Drivers involved in accidents collect medical expenses lost wages and related injury costs form their own insurance companies b Bodily injury coverage i Bodily injury liability 1 Coverage for the risk of financial loss due to legal expenses medical costs lost wages and other expense associated with injuries caused by an automobile accident for which the insured was responsible ii Medical payments 1 Automobile insurance that covers medical expenses for people injured in one s car or as a pedestrian iii Uninsuredunderinsured motorist protection 1 Automobile insurance coverage for the cost of injuries to a person and members of his or her family caused by a driver with inadequate insurance or by a hitandrun driver c Property damage coverage i Property damage liability 1 Automobile insurance coverage that protects a person against financial loss when that person damages the property of others ii Collision 1 Automobile insurance that pays for damage to the insured s car when it is involved in an accident iii Comprehensive 1 Automobile insurance that covers financial loss from damage to a vehicle caused by a risk other than a collision such as fire theft glass breakage hail or vandalism d Other coverage i Wage loss ii Towing and emergency road service Importance of health care insurance a Helps in the event of a medical emergency high costs of medical care What you can do to reduce health care costs a Review fees and charges b Seek preventive care c Ask for generic drugs d Practice preventive care and stay well e Use a flexible spending plan 10 Types of medical coverage and deductibles a Hospital expense insurance i Covers room and board while staying in hospital b Surgical expense insurance i Covers everything associated with surgery c Physician expense insurance i Provides benefits for doctors fees for nonsurgical care X rays and lab tests d Major medical insurance i Pays most of the costs exceeding those covered by the hospital surgical and physician expense policies e Comprehensive major medical insurance i A type of major medical insurance that has a very low deductible and is offered without a separate basic plan f Hospital indemnity i Pays stipulated daily weekly or monthly cash benefits during hospital confinement g Dental expense insurance i Provides reimbursement for the expenses of dental services and supplies and encourages preventive dental care h Vision care insurance i Good vision plans should cover diagnosing and treating eye diseases such as glaucoma periodic eye examinations eyeglasses contact lenses and eye surgery i Longterm care insurance i Nursing home elderly care 1 Provides dayin dayout care for longterm illness or disability 11 Major provisions in a health insurance policy a Eligibility i Defines who is entitled to benefits under the policy b Assigned benefits i Sign a paper allowing your insurance company to make payments to your hospital or doctor c Internal limits i Policy will only pay a fixed amount for your hospital room no matter what the actual rate is or it will cover your surgical expenses only to a fixed limit no matter what the actual charges are d Copayments i Type of cost sharing ii The amount a patient must pay for the medical services after the deductible has been met e Service benefits i Insurance benefits are expressed in terms of entitlement to receive specified hospital or medical care rather than entitlement to receive a fixed dollar amount for each procedure f Exclusions and limitations i Specifies the conditions or circumstances for which the policy does not provide benefits g Coordination of benefits i Prevents from collecting benefits from two or more group policies that would in total exceed the actual charges h Cancellation and termination i Explains the circumstances under which the insurance company can terminate your health insurance policy 12 Health insurance tradeoffs a Reimbursements vs indemnity i Reimbursements 1 Provides benefits based on the actual expenses you incur ii Indemnity 1 Provides specified benefits regardless of whether the actual expenses are greater or less than the benefits b Internal limits vs aggregate limits i Internal limits 1 Stipulates maximum benefits for specific expenses a Maximum reimbursement for daily hospital room and board 2 Aggregate limits a Limit only the total amount of coverage or no limits at all i 1 million major expense benefits c Deductibles vs coinsurance i Deductibles 1 The amount you must pay toward medical expenses before the insurance company pays ii Coinsurance 1 Insured pays a share of the payment made against a claim d Outof pocket limit stop loss i Limits the total of the coinsurance and deductibles you must pay e Reasonable and customary charges i Limits reimbursement to the usual charges of medical providers in an area and helps preview overcharging 13 Medicare and medigap a Medicare i Federal health insurance for people 65 and older people of any age with kidney failure and people with certain diabilities ii Part A Hospital 1 Helps pay for inpatient hospital care inpatient care in a skilled nursing facility home health care and hospice care 2 Pay a single annual deductible iii Part 3 Medical 1 Helps pay for doctors services and a variety of other medical services and supplies not covered by hospital insurance 2 Monthly payment is deducted from SSI checks iv Part C Medicare Advantage 1 Serves as a substitute for the original Medicare Parts A and B v Part D Prescription Drugs 1 Covers medically necessary drugs b Medigap i Covering the gap from medicare 14 Patient Protection and Affordable Health Care Act of 2010 Tax credits to small businesses Prohibits denying children for preexisting conditions Access to health care for people with preexisting conditions No copay for preventive services Can remain on parent s policy until age 26 Prohibits lifetime caps Restricts use of annual limits Gives consumers access to an internal appeals process Increases funding for Community Health Centers Investment to increase number of physicians nurses nurse practitioners and physician assistants k Requires justification for all premium increases 15 Definition of disability a Unable to perform a task for anyjob government b Unable to continue previous job 16 Disability insurance tradeoffs a Waiting or elimination period i Benefits do not begin immediately ii Longer waiting period smaller premium b Duration of benefits i Various duration times a few years to 65 or for life c Amount of benefits i Should aim for benefits to equal 6070 of gross pay 39quot3ltznhmnocrsv d Accident and sickness coverage e Guaranteed renewability i Helps protect you against the insurance company dropping you if your health becomes poor 17 Purposes of life insurance a Pay off debts like mortgage Provide income to survivors Provide education Cover medical and funeral costs Make charitable bequests Provide retirement income g Estate planning and estate taxes 18 Life insurance needs a Childhood and Singlehood I b Marriage c Children d Empty Nest e Retirement 19 Methods of estimating life insurance needs a Easy method i Based on the insurance agent s rule of thumb that a quottypical family will need approximately 70 of your salary for seven years before they adjust to the financial consequences of your death b Dual Income No Kids DINK i Ensure that your spouse will not be unduly burdened by debt in case of death c Nonworking spouse i Replaces the extra costs incurred to have a homemaker for a family of small children d Family Need i Based on the needs involving various familylife events 20 Types of life insurance companies a Stock Companies i 75 of companies ii Sell nonparticipating policies iii Guaranteed premiums b Mutual Companies i 25 of companies ii Owned by policy holders iii Slightly higher premiums and dividends 21 Types of life insurance policies a Term Life i Specific period of time ii Can be renewable iii Multiyear level term most popular iv Conversion option v Decreasing term vi Return of premium no cash value b Whole Life i Pay premiums as long as you live ii Premium based on age and health at time of purchase iii Cash value builds iv Can borrow against cash value v Types of whole life 1 Limited payment policy The 2 Variable life policy 3 Adjustable life policy 4 Universal life insurance c Other types i Group life 1 nsures a large number of persons under the terms of a single policy without requiring medical examinations ii Endowment life 1 Provides coverage from the beginning of the contract to maturity and guarantees payment of a specified sum to the insured even if he or she is still living at the end of the endowment period iii Credit life 1 Used to repay a personal debt should the borrower die before doing so 22 Important provisions in a life insurance contract a Beneficiary i Person who is designated to receive something from the insured b Contingent beneficiary i A beneficiary specified by an insurance contract holder who will receive the benefits if the primary beneficiary has died at the time the benefit is to be paid c Grace period i Gives you 28 to 31 days to pay the premium without penalty before the policy lapses d Reinstatement i Policy can be reinstated after premiums are paid back with interest and within the reinstatement period e Nonforfeiture i A provision that allows the insured not to forfeit all accrued benefits f Incontestability clause i A provision stating that the insurer cannot dispute the validity for a policy after a specified pe od g Suicide clause i A provision stating that if the insured dies by suicide during the first two years the policy is in force the death benefit will equal the amount of the premium paid h Automatic premium loans i If you do not pay the premium within the grace period the insurance company automatically pays it out of the policy s cash value if the cash value is sufficient in your whole life policy i Misstatement of age provision i If the insurance company finds out your age was incorrectly stated it will pay the benefits your premiums would have bought if your age had been correctly stated j Policy loans i Permits you to borrow any amount up to the cash value of the policy k Riders i Waiver of premium disability benefit 1 Waves any premiums that are due after the onset of total and permanent disability ii Accidental death double indemnity 1 A benefit under which the company pays twice the face value of the policy if the insured s death results from an accident iii Guaranteed insurability 1 Allows you to buy specified additional amounts of life insurance at stated intervals without proof of insurability iv Cost of living protection 1 Designed to help prevent inflation from eroding the purchasing power of the protection your policy provides i Accelerated living benefits 1 Life insurance policy proceeds paid to the terminally ill policyholder before he or she dies ii Secondtodie option 1 Insures two lives death benefit is paid when the second spouse dies 23 Settlement options a Lump sum i Insurance company pays the face amount of the policy in one installment b Limited installment payment i Provides payments of the life insurance proceeds in equal periodic installments for a specified number of years after your death c Life income option i Payments are made to the beneficiary for as long as she or he lives d Proceeds left with companyinterest first option i Proceeds are left with the insurance company at a specified rate of interest 24 Retirement planning misconceptions slide a My expenses will decrease My retirement will last 15 years My social security and pension are enough I will have adequate health coverage There is plenty of time to start f Savingjust a little will not help 25 Why we do retirement planning a People are living longer more years to cover Takes a good plan to save and how to spend to ensure it will last entire term 26 Key retirement planning advice slide a Put your own money away for retirement 0103 b With an employersponsored plan contribute to maximize matching funds c Start early d Save a lot i 1215 in 20s ii 2025 if older e Invest wisely f Don t be too conservative g Do not withdraw the funds until retirement h Plan the distribution 27 Avoiding the Big Mistakes a Understanding your savings goal b Starting too late c Not contributing enough yourself d Being too conservative e Taking money out before retirement f Underestimating life span g Overestimating how much you can withdraw at retirement 28 Social security a Becoming qualified i Must worka minimum of 40 quarters 10 years ii Earnings are based on a 30 year average b Estimating benefits i Fullbenefit age retirement 656667 ii Younger age retirement 1 Decrease the amount of retirement funds by 3 iii Later age retirement 1 Increase to the amount of retirement funds c Spouse s benefit i Receive 50 29 Two parts of estate planning a Estate the wealth accumulated over a lifetime is your estate b Estate planning a definite plan for the administration and disposition of one s property during one s lifetime and at one s death 30 Dying without a will a Decedent dies quotinterstatequot i State decides distribution b If no heirs estate quotescheatsquot to the state 31 Types of wills a Simple will i known as quotI love you ii Everything left to spouse b Marital Share will i Grantor leaves onehalf of the adjusted gross estate to the spouse c Exemption trust will i Everything passes to the spouse except the exemption d Stated dollar amount i Allows you to pass on to your spouse any amount that satisfies your family objectives 32 Format of wills a Holographic i Handwritten b Formal i Typed c Statutory i Formal will on a preprinted form 33 Preparing for incapacity a Powers of attorney i Standard 1 Letter of attorney is a written authorization to represent or act on another s behalf in private affairs business or some other legal matter ii Durable 1 Legal document authorizing someone to act on one s behalf even if the grantor becomes incapacitated iii Springing durable 1 Used to allow a spouse or family member to manage the grantor s affairs in case of illness or injury makes the grantor unable to act b Advance medical directives i Health care Power of Attorney 1 Gives the attorneyinfact the authority to make healthcare decisions for the grantor ii Living will 1 A document that enables an individual while well to express the intention that life be allowed to end if he or she becomes terminally ill
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