FAMILY FINANCL ANALY
FAMILY FINANCL ANALY COA 4131
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This 15 page Study Guide was uploaded by Jacinto O'Hara on Thursday September 17, 2015. The Study Guide belongs to COA 4131 at Florida State University taught by Elizabeth Goldsmith in Fall. Since its upload, it has received 80 views. For similar materials see /class/205625/coa-4131-florida-state-university in Economcs at Florida State University.
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Date Created: 09/17/15
CHAPTER 8 H U1hWN LDOONO I Insurance for protection individuals pay premiums to an insurance company in case of loss or injury a Over 1 million ppl are employed by 35000 insurance companies b State Farm Allstate Aetna Prudential and Citigroup c Almost 1 in every 12 dollars spent in the US goes to pay for insurance Premium payment for insurance Actuarial risk risk an insurance underwriter takes in exchange for premiums Policy insurance contract Personal risk management process of identifying and evaluating risk faced by individuals and families Pure risk risk that has a threat of loss without possibility of gain Speculative risk risk that has the possibility of gain and loss Exposures sources of risks Liability claim on assets of a business organization or individual 10 3 risks commonly associated with insurance a Property risks individuals that own rent or use property are exposed to the risk that the property may be damaged destroyed or stolen U39 Liability risks individuals can be held legally liable for a number of reasons ranging from personal acts that cause bodily harm or property damage to others to liability from the negligent use of boats or cars 9 Personal risks potential losses involved with the health and well being of individuals from such things as unemployment injuries on the job and medical problems 11 Five basic parts of insurance contracts a declarations describe what s being covered exclude what insurance does not want to insure U39 agreements describe the coverage provided exclusions list items for which the company will not pay like flood O damage a conditions delineate a set of obligations imposed on both the insurance company and the insured in the policy endorsements amend or add to a basic insurance policy expensive in jewelry 12 Pooling the spreading of losses incurred by a few over an entire group 13 Property insurance pays for losses to homes autos boats rec vehicles and other personal property due to theft fire vandalism natural disasters or other causes a b Most important feature of homeowners insurance is replacement cost coverage which is the coverage you would pay to rebuild your house if it were destroyed Insure you home at least 80 of its replacement cost 14 Insurance process 1 Awareness must be aware that insurance is needed N Analysis what should be insured who should be insured for how long 00 Action seeking more info and selecting insurers and policies 5 Evaluation look back on decisions and actions made earlier 15 Liability insurance pays for losses from negligence that results in bodily injury or property damage to others 16 Homeowner policy forms rhinng HO1 HO2 HO3 HO4 HO6 HO8 basic owner occupied min coverage is 15000 broad coverage is more extensive special min coverage is 20000 contents broad covers renters contents and liability unit owners used for condos modified used for older urban homes developed to meet the needs of ppl moving back into older neighborhoods and remodeling homes 17 Personal auto policy auto insurance cover legal liability arising out of the ownership or operation of a covered automobile a 4parts liability coverage most important part of PAP protects a covered person against a lawsuit or claim arising out of the negligent operation of a car medical payments coverage pays for reasonable medical dental xray surgical and funeral expenses uninsured and underinsured motorists coverage pays for bodily injury caused by an uninsured motorist or hit and run driver or negligent driver with an insolvent insurer iv physical damage coverage collision loss and comprehensive b In the US the single largest line of property and liability insurance is automobile insurance c 35 million auto accidents a year 18 No fault insurance provides that after an auto accident each party collects from his or her own insurer regardless of fault a About half of the states and DC offer no fault insurance 19 Umbrella policy provides liability coverage of 1 million or at a cost of 200 to 400 a year and goes into effect after the underlying liability policy s coverage limits have been exceeded usually purchased to protect themselves against a large jury award in a lawsuit 20 Renters insurance HO4 form covers the major perilsfinancial loss provides liability protection and additional living expenses if the dwelling is rendered uninhabitable by one of the covered perils a inexpensive but fewer than half of renters in the US have it Review Questions 1 Actuarial risk is the risk an insurance undertaker takes in exchange for premiums a True 2 The most important feature of homeowner39s insurance is the replacementcost coverage a True 3 An insurance contract is called a policy a True 4 The most important part of PAP personal auto policy is the liability coverage a True 5 All states require auto insurance b False 6 is the main way people protect themselves and their belongings a insurance 7 payments are made by the policy holder to the insurer c premiums 8 is a claim on the assets of a business organization or individual b liability 9 Which of the following is not one of the steps in the Insurance Management Process d assumption 10 pays for losses to homes autos boats rec vehicles and other personal property due to theft fire vandalism natural disasters or other causes a property insurance Test Review for COA 4131 Chapters 610 Chapter 6 1 WFJ saw l l NH U39l Average family budget a 32 for housing b 18 for transportation c 15 for food d 5 for utilities Rent payment for use of property Security Deposit payment required in advance to cover wear on unit a Example if first month s rent is 1000 then the security deposit is also 1000 so the renter would pay a total of 2000 dollars before moving in Lease legal document between renter and landlord Sublease property can be leased to another Benefits to owning a house a Build equity i Equity the value of an ownership interest in property after all liabilities are paid off b Tired of leasing c Tax deductions on mortgage interest d Tax free capital gains e Appreciation increase in the home s value Way to wealth in America Own things that increase in value over time Mortgages loans to purchase real estate PITI principal interest taxes and insurance Housing a Condominiums the homeowner has the title to hisher unit and jointly owns common areas b Cooperative housing Units owned by the coop not the homeowner who owns shares in the building c Manufactured housing Units assembled at a factory and moved to a building site Real estate agents make a 6 commission Binder or earnest money security deposit by the buyer as evidence of a serious offer 13 Amortization Process of paying off a loan through a series of payments Escrow Earnest money held by the mortgage lender until closing Fixed rate conventional mortagages usually carried for 15 to 30 years a 30 year 8 interest rate b 15 year 416 interest rate c If your fixed mortgage is too high REFINANCE to reduce monthly payments and to modify interest charges i Revising a payment schedule 16 Adjustable Rate mortgages 63 interest 17 125 loans Home equity loans that allow the homeowner up to 125 of the home s value 18 Reverse mortgages Arrangement wherein owner borrows against home equity 19 2836 Ratio lender prefers buyers to spend no more than 28 to 36 of their monthly gross income on housing 20 Appraisal Estimate of home s current value 21 Adjustable mortgage 38 22 Loans through GOV T a FHA low income b VA Veteran s Affairs 23 Closing meeting in which real estate is transferred from seller to buyer 24 Points fees paid to the lender at the closing Transportation and vehicles 25 Leasing Contractual agreement outlining monthly payments security deposit and terms of lease 26 Advantages of leasing a Leasing is less money upfront b Monthly payments may be less for leasing than for owning c Leasing may be paid for by a business or may be favored for business purposes d No tradein or resale worries following leasing 27 Disadvantages of leasing a The vehicle is not owned b Extra costs for mileage repairs and turning the vehicle in early or moving to another state 28 3 Types of Leases a Closeended leaser returns the vehicle at the end of the lease period b Openended or finance leases may require the leaser to pay difference between the expected value of the leased automobile and the amount for which the leasing company sells it c Single payment lease allows the customer to obtain a discount on the motor vehicle rental agreement 29 Invoice Price Cost of the car for the dealer 30 Sticker Price Price listed on the car 31 Depreciation Loss of the vehicle s value due to time and use LARGEST FIXED EXPENSE 32 67 of American households own their homes Review Questions 33 Condominiums are units usually apartments in cities that are owned by a corporation not directly by the buyer a FALSE Jgt U1 1 N 00 to O Jgt N b The title is the legal right of ownership of property a TRUE Most homeowners have conventional mortgages a TRUE The largest fixed expense in owning a vehicle is usually depreciation a TRUE More people than ever are leasing vehicles a TRUE What percent of a typical family s budget goes for housing a 32 What percent of a typical family s budget goes for transportation a 18 Given the 2 V2 times rule if your income is 28000 a year how much home can you afford a 70000 About percent of home sales are made by owners each year a 10 In the 1990s an estimated percent of all vehicles were bought through a buying service or broker a 20 CHAPTER 9 Health Insurance Disability 1 Health insurance is the 1 need a Yourjob should offer health insurance to you most Americans have employerbased health insurance 61 039 American families spend about 45 of their earnings on health insurance c Over a trillion a year is spent on health care about 15 of personal income d 3 main types are private group health insurance individual health insurance and government programs Health care costs are rising for 5 reasons 1advances in medical technology and care which prolong life 2 a decline in lengthy hospital stays and more of an emphasis on outpatient services 3 demographics 4 increases in third party payments 5 rising costs in labor prescriptions supplies and administration N Managed care refers to plans that combine the financing of healthrelated services and the delivery of health care a HMO health maintenance organization alternative to health insurance that has gained prominence in the past 20 yrs b PPO preferred provider a group of physicians or hospitals provide services to employees through their employers who get a group discount price c POS point of service organization which is rare has highest deductible so least selected of the 3 3 Medicare government program federal health insurance program for ppl 65 or older people of any age with permanent kidney failure and certain disabled ppl under 65 a Administered by the Health Care Financing Administration 4 Medicaid health care program for ppl with low income and limited assets It covers long term care hospital and medical expenses 5 25 have MedicareMedicaid 6 1315 DO NOT have health insurance especially kids 10 million in US 7 Save money on health insurance a Comparison shop b Check for preexisting condition exclusions c Review coverage needs over time d Evaluate planpolicy after purchase 8 Marriage and divorce a If a couple divorces med coverage under a former spouse s plan can be continued for 36 months 9 Childbirth a Doctors file a claim with the patient s insurer after a child is born 10Five types of private health insurance policies a Basic medical expense insurance covers hospitalization and outpatient treatment Major medical insurance covers large medical expenses Disability income insurance 000 Medicare supplement insurance e Long term care insurance 11Disability income insurance insurance policy that pays benefits to a policy holder when that person becomes incapable of performing one or more occupation duties either temporarily on a long term basis or totally This policy typically pays 60 80 of one s paycheck 12Medicare supplement insurance Medigap insurance purchased from private insurance companies not the government 13Long term care insurance LTC provide benefits for a range of services not covered by regular health insurance or by MedicareMedigap insurance a Spenddown process by which medical and nursing home care reduces a person s assets 14Rarer types of insurance Test Review for COA 4131 Exam 2 Chapter 7 Cost of Providing Care 1 Costs of childbirth a Vaginal delivery 6500 S10000 b C section Vaginal delivery 5000 6000 more c HEALTH INSURANCE IS A MUST 2 Costs of adopting a Most parents adopt through agencies b Public adoption agencies charges no fees or small fees c Private adoption agencies charge about 9000 3 Cost of raising children birth to 18 a 300000 for middle class b 430000 for upper class c Urban kids cost more than rural kids 4 Cost of child care a Girls cost more to raise b Dependent care assistance plan employer sponsored plan to reimburse parents for child care costs c Main cost is housing 5 Children Young Adults and Taxes a Kiddie Tax tax filed by parents for the investment income of children under age 14 18 21 are the ages of majority when you are considered to be an independent adult 19 years old or 24 are the other most important tax birthdays because the 57 5quot federal gov t says you are no longer a dependent of on your parents unless you are still in school 6 What do children spend their money on a Children under 12 33 on fooddrink 25 for play and toys 15 is saved significant portion on clothing 57 Under 12 have 202 billion to spend per year Teenagers have 100 billion to spend per year mostly on clothing food and 5quot entertainment 7 Money Gifts or Investments for Children a College savings usually through state government b Custodial accounts accounts created for minors usually at a brokerage firms banks or mutual funds c Uniform Transfer to Minors Act or Uniform Gifts to Minors Act Provide simple ways to transfer wealth to minors without a formal trust d Age of majority Age when young adults can access custodial accounts in their name i 18 or 21 depending on the state 8 Investing in college a Time Horizon Factor Number of years before money is needed b Diversify the investment portfolio bc ofthe ups and downs in the economy 9 Before Marriage Including Pre Nups a Marriage Penalty effect ofa tax code that makes married people pay more than two single people b Prenuptial agreement Legal contract between a future husband and wife about the splitting of assets in the events of a divorce 10 Weddings a Average cost of a wedding is 30000 b Main expense is the reception followed by the engagement ring c Disney s quotThe Ultimate Fairy Tale Wedding costs 100000 d 1St marriage lasts about 11 years 11 Divorce a 3 basic questions i How much is there to be divided ii What portion is liquid and income producing iii How should it be split b 15 16 of women are awarded alimony c Family Support Child support and alimony combined in one payment d Child Support 39 Temporary When parents first separate or file for divorce the judge may order one parent to pay temporary child support Permanent When the divorce is finalized the court issues permanent child support although this is a misnomer since circumstances may change the amount and payment schedule Family Support Some states allow child support and alimony to be combined into one payment called family support 1 Tax considerations for family support 2 Taxable income for receiving parent and a deduction for paying parent iv Child Support Gap difference between what the parent receives and how much it costs to raise a child e Estate Planning in Second Marriages 39 Q tip trust pass income to the surviving spouse for life and preserves the principal for the children upon the spouse s death quotSprinklingquot trust grants a trustee discretion over the distribution of income from a trust 12 Social Security Starts at 65 66 or 67 partial starts at 62 Average age of retirement is 63 Everyone in America gets social security as long as you work You can work and get social security 5999575 Benefits for divorced men and women i Have been married for at least 10 years to the person claiming the benefit ii Be at least 62 years old iii Be unmarried iv Not be eligible for an equal or higher benefit on his or her own Social Security record or on someone else s Social Security record 13 Medicare a Medicare the federal health insurance program for the elderly and many people with disabilities i Hospital insurance including in patient hospital care skilled nursing facility care home health care and hospice care ii Medical insurance that helps pay for doctors services outpatient care tests home health visits and other services b Medicaid Federal health care program for low income people c Average life expectancy today i Men 72 ii Women 79 14 Nursing homes a Nursing homes can go for as much as 60000 a year 15 Charities a Tax Benefit by donating to a charity REVIEW QUESTIONS 1 Food is the biggest expense for raising children a FALSE 2 Child care can run as much per year as college tution a TRUE Au Pairs are the least expensive child care option a FALSE Most women get alimony in a divorce a FALSE Experts agree that children s allowances should be based on their performance of household chores a FALSE The age of majority varies by state but it is usually a Age 18 or 21 At age a child is no longer taxed on the parents rate a 14 While a child is still in school a parent can claim the child as a dependent on tax returns up to the age of a 24 An option for giving substantial money gifts is to invest in under the Uniform Gifts to Minors Act a A custodial account Most experts agree that some of a college fund should be invested in for the greatest growth potential a Stocks and mutual funds CHAPTER 8 1 Insurance for protection individuals pay premiums to an insurance company in case of loss or injury N Premium payment for insurance 00 Policy insurance contract 5 Declaration describe what s being covered exclude what insurance does not want to insure U1 Pooling the spreading of losses incurred by a few over an entire group 0 Property insurance pays for losses to homes autos boats rec vehicles and other personal property due to theft fire vandalism natural disasters or other causes I Insurance process 1 Awareness must be aware that insurance is needed N Analysis what should be insured who should be insured for how long 00 Action seeking more info and selecting insurers and policies 5 Evaluation look back on decisions and actions made earlier 00 Liability insurance pays for losses from negligence that results in bodily injury or property damage to others LO Personal auto policy auto insurance cover legal liability arising out of the ownership or operation of a covered automobile 4 parts liability coverage medical payments coverage uninsured and underinsured motorists coverage physical damage coverage 10 Umbrella policy provides liability coverage of 1 million or at a cost of 200 to 400 a year and goes into effect after the underlying liability policy s coverage limits have been exceeded usually purchased to protect themselves against a large jury award in a lawsuit 11 Renters insurance HO4 form covers the major perilsfinancial loss provides liability protection and additional living expenses if the dwelling is rendered uninhabitable by one of the covered perils inexpensive but fewer than half of renters in the US have it Review Questions 1 Actuarial risk is the risk an insurance undertaker takes in exchange for premiums
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