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									                                          Chapter 6
                                       Review Questions


1.     Using credit is the ideal way to provide for financial emergencies.

2.     Having a checking account tells a creditor that you have some experience in managing
       your own funds.

3.     A debt safety ratio of 10% would generally be a signal of financial trouble ahead.

4.     The Wage Earner Planner allows debtors to keep their assets.

5.     The required monthly payment on an open account will be the larger of a minimum
       dollar amount or a specified percentage of the balance.

6.     The most popular travel and entertainment credit card is Diners Club.

7.     College alumni organizations could sponsor an affinity credit card.

8.     A credit applicant will be granted credit only after establishing a complete file at the
       local credit bureau.

9.     The more credit cards one has, the better one’s credit score.

10.    Generally, finance charges are compared only on the unpaid balance from previous
       months’ purchases.

Multiple Choice

1.                 is a benefit of borrowing.
       a.     The ability to buy expensive goods while spreading the payments over time.
       b.     Providing payments that fit into a budget.
       c.     Having a permanent record of transactions.
       d.     Being able to purchase goods and services when checks are not acceptable.
       e.     All of these are benefits.

2.     In order to establish her own credit history a woman should
       a.     use her legal name.
       b.     use her husband’s name.
       c.     file a credit report with her husband.
       d.     use a social title, such as “Mrs. Jennifer Wysor”.
       e.     none of these.

3.     As a percent of your take- home pay your monthly consumer credit payments should not
       a.     25%.                   c.     15%                e.       5%.
       b.     20%.                   d.     5%
4.    Which of the following types of credit cards always have an annual fee?
      a.    MasterCard                     d.      American Express
      b.    Visa                           e.      Discover
      c.    Retail

5.    The most prestigious of credit cards is currently the
      a.    Black American Express.         d.      Green American Express.
      b.    Gold MasterCard.                e.      Amex Blue.
      c.    Platinum Visa.

6.    John uses his bank credit card frequently; however, he always pa ys off the total balance
      on the card each month. What should John look for in a credit card given the way he
      uses a credit card?
      a.      Low annual fee and short grace period
      b.      Low annual fee and low interest rate
      c.      No annual fee and short grace period
      d.      No annual fee and long grace period
      e.      High annual fee and low interest rate

7.                      does not represent a line of credit.
      a.        Retail credit card                      d.     Home equity loan
      b.        Debit card                              e.     Unsecured personal credit
      c.        Overdraft protection

8.    A problem with home equity loans is the
      a.    high rate of interest on these loans.
      b.    difficulty in qualifying for these loans.
      c.    short-term nature of these loans.
      d.    temptation to spread payments over a long term.
      e.    tax disadvantages of these loans.

9.    If the   information on your credit report is in dispute, you are entitled to
      a.         correct it.
      b.         sue.
      c.         erase it.
      d.         supply your own explanation about the dispute.
      e.         withdraw from the credit bureau.

10.   All of the following are key items lenders look at in granting credit except
      a.      income.
      b.      outstanding debt.
      c.      stability in employment and housing.
      d.      gender.
      e.      credit history.

11.   Errors and abuse in computer- generated billing resulted in passage of the
      a.     Truth in Lending Act.
      b.     Consumer Credit Protection Act.
      c.     Consumer Credit Reporting Reform Act.
      d.     Fair Credit Billing Act.
      e.     Equal Credit Opportunity Act.
12.   The Consumer Credit Protection Act is also known as the
      a.    Truth in Lending Act.
      b.    Consumer Affirmative Credit Act.
      c.    Consumer Credit Reporting Reform Act.
      d.    Fair Credit Billing Act.
      e.    Equal Credit Opportunity Act.

13.   Credit bureaus
      a.     will send you a free copy of your credit report whenever you ask.
      b.     may charge up to $20 for a copy of your credit report.
      c.     are required to correct errors only when a creditor asks them to.
      d.     All of these.
      e.     None of these.

14.   A monthly credit card statement need not include information about the
      a.    size of the payment.
      b.    payment due date.
      c.    quality of the goods purchased.
      d.    annual percentage rate.
      e.    finance charge if any.

15.   Straight bankruptcy will
      a.     eliminate all financial obligations.
      b.     result in the loss of all one’s assets.
      c.     stay on one’s credit record up to 10 years.
      d.     a and c.
      e.     a, b, and c.

                                          Chapter Ans wers

               True/False Answers                          Multiple Choice Answers
      1.   F              6. F             1.   E              6. D             11. D
      2.   T              7. T             2.   A              7. B             12. A
      3.   F              8. F             3.   B              8. D             13. E
      4.   T              9. F             4.   D              9. D             14. C
      5.   T              10. F            5.   A              10. D            15. C
                                           Chapter 7
                                        Review Questions


1.     A personal unsecured consumer loan is most frequently used to help borrowers straighten
       out a critical financial situation.

2.     The student loans with the lowest rates of interest and the best loan terms are the PLUS

3.     Installment loans are typically repaid in weekly payments.

4.     Variable rate loans are desirable if interest rates are expected to rise in the future.

5.     Most loans made by consumer finance companies are for smaller amounts and are made
       to higher risk borrowers.

6.     Savings and loan associations are allowed to make loans for things like cars.

7.     Life insurance loans usually must be repaid within two to three years.

8.     If a loan has a prepayment penalty, there will be an additional cost to repay a loan early.

9.     An installment purchase agreement typically includes a sales contract, a security
       agreement, a note, and an insurance agreement.

10.    The add-on method is more expensive than the simple interest method when stated rates
       of interest are identical.

Multiple Choice

1.     Long-term financial goals often depend on borrowing funds. The type of credit that does
       not fulfill the long-term goal achievement is       loans.
       a.      consumer                              d.  mortgage
       b.      open account                          e.  installment
       c.      automobile

2.     A consumer loan probably would not be used to
       a.    purchase an auto.                   d.            finance a special vacation.
       b.    get cash for college tuition.       e.            buy back-to-school clothes.
       c.    consolidate several loans into one.

3.     Consumers whose debt burden has become very heavy might apply for a(n)
       a.   personal loan.                     d.     consolidation loan.
       b.   single payment loan.               e.     interim financing.
       c.   buy-down loan.
4.    Regarding student loans, which of the following is not true?
      a.    They are available for both undergraduate and graduate students.
      b.    Applications can be filled out on the Internet.
      c.    There is no limit on how much can be borrowed.
      d.    There is no limit on the number of loans one can have.
      e.    Interest may be tax deductible.

5.    Commercial banks generally charge lower interest rates than other lending institutions
      a.    they have preferred customers.
      b.    they usually take only the best credit risks.
      c.    depositors require lower rates.
      d.    they get their funds in the open credit market.
      e.    they make secured loans only.

6.    If you needed a loan to buy a refrigerator, the lowest interest rate would usually be
      available from a
      a.     savings and loan association.           d.     consumer finance company.
      b.     pawn shop.                              e.     sales finance company.
      c.     commercial bank.

7.    The majority of loans made by savings and loan associations are             loans.
      a.    home improvement                     d.      education
      b.    auto                                 e.      consolidation
      c.    mortgage

8.    The largest sales finance companies are captive finance companies such as
      a.      Bank of America.                 d. General Electric Credit Corporation.
      b.      the Federal Home Loan Bank. e. Home Savings and Loan Association.
      c.     most mutual savings banks.

9.    Besides the finance charge, you should also consider           when you shop for a
      consumer loan.
      a.    loan maturity                          d.     repayment penalties.
      b.    total cost of the loan.                e.     all of the above.
      c.    collateral.

10.   A single payment loan
      a.     is generally unsecured by collateral.
      b.     usually matures in one year or less.
      c.     usually matures in five to seven years.
      d.     is generally used to finance auto purchases.
      e.     is provided by sales finance companies.

11.   If you borrow money on a single payment loan and discover you cannot pay it back when
      it is due you should
      a.      let the payment become past due.  d.     negotiate a rollover.
      b.      consolidate the loan.             e.     none of these.
      c.      convert the loan to installments.
12.   When the simple interest method is used to determine finance charges, the interest is
      calculated based on the
      a.     ending balance of the loan.          d.     beginning balance of the loan.
      b.     average outstanding balance.         e.     none of these.
      c.     actual balance of the loan.

13.   The             in an installment purchase contract indicates whether or not the lender has
      control over the item being purchased.
      a.     note                                  d.       security agreement
      b.     credit life insurance                 e.       add-on clause
      c.     sales contract

14.   Purchasing credit life or disability insurance protection is usually
      a.    a legal requirement.                     d.      non-negotiable.
      b.    at the borrower’s option.                e.      a good idea for the borrower.
      c.    at the lender’s option.

15.   Installment loans using the simple interest method
      a.      have the highest finance charges of any method.
      b.      have interest charged only on the monthly loan balance.
      c.      do not have balloon payments.
      d.      have a lower APR than the stated interest rate.
      e,.     have a higher APR than the stated interest rate.

                                          Chapter Ans wers

               True/False Answers                         Multiple Choice Answers
      1.   F              6. T             1.   B             6. C             11. D
      2.   F              7. F             2.   E             7. C             12. C
      3.   F              8. T             3.   D             8. D             13. D
      4.   F              9. T             4.   C             9. E             14. B
      5.   T              10. T            5.   B             10. B            15. B
                                          Chapter 8
                                       Review Questions


1.     Spreading risk among a large number of people is a major principle of insurance.

2.     Insurance company underwriting determines whom it can insure and what premiums to

3.     The primary purpose of life insurance is to protect family members financially after
       one’s death.

4.     Social security benefits would be an example of available reso urces for a family.

5.     The right of the policyholder to the cash value of a whole life policy is a nonforfeiture

6.     Variable life insurance would be the best plan for your primary insurance needs.

7.     Like universal life insurance, variable life insurance provides a minimum guaranteed

8.     Group life insurance is usually term life insurance.

9.     Tammy Johnson wants to name her husband, Jake Johnson, as the primary beneficiary on
       her life insurance policy. Therefore, she should designate “my husband” as the primary

10.    You may reinstate your lapsed life insurance policy without a physical examination.

Multiple Choice

1.     Insurance is a tool that can lessen        risk.
       a.     social                                 d.       accident
       b.     mental                                 e.       exposure
       c.     economic

2.     Underwriting is
       a.    selling insurance at a premium less than that of the competition.
       b.    payment of a claim.
       c.    a method for developing policy wording.
       d.    the determination of which exposures to insure.
       e.    none of these.
3.    In determining available resources to offset economic needs, you would generally not
      a.      social security benefits.
      b.      earning potential of financially independent children.
      c.      earning potential of surviving spouse.
      d.      savings.
      e.      employer-provided group life insurance.

4.    Term life insurance is characterized by
      a.     level annual premiums throughout life.
      b.     premium amounts related to age.
      c.     inappropriateness for most person’s life insurance needs.
      d.     non-convertibility.
      e.     cash value.

5.    Jose died at age 45 leaving a wife (age 36) and two sons (ages 10 and 12). His wife,
      Maria, is not gainfully employed. Which of the following is true regarding their Social
      Security benefits assuming Jose was covered by Social Security?
      a.     The sons will receive Social Security benefits until they are age 18.
      a.     Maria can receive benefits for 6 more years.
      c.     Marie can receive benefits when she is 60.
      d.     a and b
      e.     a, b, and c

6.               is a common provision in many term policies.
      a.     A reward clause                    d.     A limited clause
      b.     A renewable clause                 e.     An arbitration clause
      c.     Cash value

7.    Decreasing term insurance usually has a decreasing face value and
      a.    a decreasing premium.                 d.     a fluctuating premium.
      b.    a level premium.                      e.     none of the above.
      c.    an increasing premium.

8.    If the objective of your life insurance program is to   get the greatest death protection for
      your insurance dollars, you should choose                insurance.
      a.      term                                  d.        industrial
      b.      universal                             e.        whole life
      c.      limited pay

9.    Eric will make premium payments on his insurance policy until he dies, and if he cancels
      the policy he will receive the cash value. His plan is a        life policy.
      a.      term                                 d.       universal
      b.      straight life                        e.       none of the above
      c.      whole life insurance

10.   The insurance portion of a universal life policy is made up of
      a.     mortgage insurance.                    d.      term insurance.
      b.     group insurance.                       e.      variable insurance.
      c.     limited payment.
11.   An insured usually chooses variable life insurance in order to
      a.     provide more flexible coverage.
      b.     emphasize the savings portion.
      c.     lessen the savings feature of life insurance.
      d.     substitute for fixed-dollar insurance protection.
      e.     reduce insurance premiums.

12.   Which of the following would be the most cost effective method of insuring business
      partners who want to provide funds to buy the other’s share of the business when one of
      them dies?
      a.     Joint- life insurance                d.      Variable life insurance
      b.     Survivorship insurance               e.      Universal life insurance
      c.     Group life insurance

13.   A grace period permits the policyholder to retain full insurance (even though the
      premium has not been paid) for
      a.     a year.                               d.      2 months.
      b.     6 months.                             e.      1 month.
      c.     3 months.

14.   Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, was the
      primary beneficiary and their children, Mimi (age 24) and Ann (age 30), were the
      contingent beneficiaries. All three survived Marilyn. How would the policy proceeds be
      a.      $200,000 to Jack
      b.      $100,000 each to Mimi and Ann
      c.      $100,000 to Jack and $50,000 each to Mimi and Ann
      d.      $66,666 each to Jack, Mimi, and Ann.
      e.      $150,000 to Jack and $250,000 each to Mimi and Ann.

15.   Nonforfeiture rights of policyholders guarantee a
      a.    policy face value.                     d.      premium refund.
      b.    death benefits for survivors.          e.      premium reductions.
      c.    cash value.

                                         Chapter Ans wers

               True/False Answers                         Multiple Choice Answers
      1.   T              6. F             1.   C             6. B             11. B
      2.   T              7. F             2.   D             7. B             12. A
      3.   T              8. T             3.   B             8. A             13. E
      4.   T              9. F             4.   B             9. B             14. A
      5.   T              10. F            5.   E             10. D            15. C
                                          Chapter 9
                                       Review Questions


1.     The government pays for more medical costs for Americans than does private health

2.     Medicare and Medicaid are hospital and physicians coverage, respectively.

3.     Hospital insurance will pay daily room and board charges up to a specified number of
       days and reimbursement for ancillary charges up to a specified dollar amount.

4.     Hospital insurance policies will pay for all hospital expenditures most of the time.

5.     In insurance terminology, “participation” and “coinsurance” mean the same thing.

6.     The major emphasis of dental insurance is to cover only extractions and x-rays.

7.     Health insurance policies automatically cover all family members.

8.     Long-term care insurance can cover both nursing home and home health care.

9.     An “any occ” definition of disability is more liberal that an “own occ” definition.

10.    Generally, insurance is more reasonably priced through group plans than as individual

Multiple Choice

1.     The largest portion of health care costs pay for
       a.     hospital expenses.                     d.     nursing home costs.
       b.     prescription drugs.                    e.     medical equipment.
       c.     physicians’ services.

2.     Jackie pays $20 every time she visits her doctor. She is covered by a(n)
       a.     HMO.                  d.      Indemnity plan.
       b.     IPA.                  e.      Could be any of these except the indemnity plan.
       c.     PPO.

3.     An Individual Practice Association differs from a HMO in that
       a.    you have no choice of the physician.
       b.    they are located in a central facility.
       c.    associated doctors operate from their own offices.
       d.    they are less likely to be found in small communities.
       e.    none of these.
4.    If your employment is terminated, COBRA provides for
      a.      cancellation of all group insurance benefits.
      b.      continuation of group insurance benefits until you are reemployed.
      c.      permanent continuation of group health insurance.
      d.      temporary continuation of group insurance benefits; you pay premiums.
      e.      temporary continuation of group insurance benefits; employer pays premiums.

5.    Health insurance coverage can include
      a.     group plans.                         d.      veteran’s benefits.
      b.     workers’ compensation.               e.      all of the above.
      c.     social security..

6.    Medicare is a government-sponsored health care plan composed of Part A and Part B.
      Part A covers
      a.     hospital expenses.                 d.      prescription drugs.
      b.     doctor’s bills.                    e.      all of the above.
      c.     custodial nursing home expenses.

7.    Workers’ compensation is a state that provides benefits for
      a.    unemployed workers.
      b.    workers suffering injury or illness on the job.
      c.    any injury suffered by a worker at any time.
      d.    injuries resulting from employer’s negligence.
      e.    none of these.

8.    Physicians expense insurance usually covers
      a.     consultation with a specialist.      d.      all of the above.
      b.     outpatient x-rays.                   e.      none of the above.
      c.     outpatient laboratory tests.

9.    A comprehensive major medical insurance would not normally
      a.    have a large deductible.
      b.    include basic hospital coverage.
      c.    provide surgical expense coverage.
      d.    include medical expense coverage.
      e.    be written under a group contract.

10.   Given a $500 annual deductible, a $4,000 lid on the coinsurance, 80/20 coinsurance, and
      a $250,000 policy limit, how much of a $15,000 medical bill will be paid by the insured?
      a.     $500                                 d.      $4,000
      b.     $2,900                               e.      $4,500
      c.     $3,400

11.   Miscellaneous sources of health care coverage include
      a.     homeowners insurance.                d.     all of the above.
      b.     automobile insurance.                e.     none of the above.
      c.     veterans benefits.
12.   A “coordination of benefits” provision in a health insurance policy provides which of the
      following benefits?
      a.     Allows the policyholder to be double-covered for the same loss.
      b.     Provides broader coverage than a policy without such provision.
      c.     Often results in lower cost insurance premiums.
      d.     Drops pre-existing conditions clauses from a policy.
      e.     All of the above.

13.   The insurance designed to help with nursing home or in-home care due to chronic illness
      is called
      a.      Medicare.                           d.    nursing home care.
      b.      major medical.                      e.    none of these.
      c.      comprehensive major medical.

14.   Which of the following is not a desirable feature in a long-term care policy?
      a.    Inflation protection                   d.       Coverage for Alzheimer’s disease
      b.    Optional renewability clause           e.       Coverage for preexisting conditions.
      c.    Duration of benefits of 6 years

15.   All of the following except a                  are highly recommended for a long-term
      disability income policy.
      a.      guaranteed renewable clause              d.     short waiting period
      b.      cost-of- living adjustment               e.     waiver of premium
      c.      long duration of benefit

                                         Chapter Ans wers

               True/False Answers                           Multiple Choice Answers
      1.   T              6. F              1.   A              6. A             11. D
      2.   F              7. F              2.   E              7. B             12. C
      3.   T              8. T              3.   C              8. D             13. E
      4.   F              9. F              4.   D              9. A             14. B
      5.   T              10. T             5.   E              10. C            15. D
                                          Chapter 10
                                       Review Questions


1.     Personal property floaters are needed to adequately cover valuable jewelry, furs, and

2.     The principle of indemnity is designed so that the insured can be compensated for an
       amount equal to his economic loss.

3.     If your insurance company makes a payment to you, subrogation is the right of the
       company to collect from the person causing the accident or from his/her insurance

4.     A coinsurance clause stipulates that you must carry insurance up to a specific amount,
       such 80 percent of the replacement value.

5.     An HO-1 policy lists more perils for which you are insured than an HO-3 does.

6.     Protection for personal property both at home and away from home is a provision of the
       homeowners’ policy.

7.     Automobile liability claims could potentially be more costly to you than car damage

8.     Automobile medical payments insurance normally contains an indemnity clause.

9.     The named insured and her passengers would be covered under automobile medical
       payments insurance.

10.    Financial responsibility laws in most states are high enough to adequately meet one’s
       auto liability needs.

Multiple Choice

1.     The asset most likely to be specifically itemized in a property insurance policy is
       a.     sofa.                           d.     garden equipment.
       b.     clothing.                       e.     all of these.
       c.     jewelry.

2.     Negligence results when a person
       a.    is not insured.
       b.    acts as a “reasonable person.”
       c.    fails to act as a “reasonable person.”
       d.    admits it.
       e.    is more than 18 years old.
3.    Generally, actual cash value is defined as
      a.    replacement cost.
      b.    original purchase price.
      c.    market value.
      d.    purchase cost minus depreciation.
      e.    replacement cost minus depreciation.

4.    If you have two insurance policies on the same property, the          clause explains
      how the two insurance companies will share the loss.
      a.     principle of indemnity.               d.    companies’ insurable interest.
      b.     coinsurance clause.                   e.    principle of subrogation.
      c.     other insurance clause.

5.    You just purchased an older home in a very nice neighborhood. Its market value is
      $100,000 but its replacement value is $150,000. What HO form would meet your needs?
      a.    HO-2                                  d.     HO-6
      b.    HO-3                                  e.     HO-8
      c.    HO-4

6.    Your homeowners’ policy typically covers            while on your property.
      a.    motorcycles                        d.        golf carts
      b.    business inventory                 e.        none of the above
      c.    pets

7.    A homeowner’s policy does not provide protection for the personal property of
      a.   family members at home.              d.      tenants.
      b.   family members while in college.     e.      family members traveling.
      c.   guests.

8.    The standard homeowners’ policy pays based on replacement cost for
      a.     the house.                        d.      cars.
      b.     contents.                         e.      none of these.
      c.     both the house and contents.

9.    Homeowners’ insurance premiums are determined by
      a.   policy limits.                     d.     all of these.
      b.   perils covered.                    e.     none of these.
      c.   deductibles chosen.

10.   Which of the following would be insured for actual cash value under a standard HO-2
      a.      The house                          d.      a and c
      b.      Unscheduled personal property      e.      a, b, and c
      c.      Scheduled personal property

11.   Common types of property that are subject to internal limits on homeowner’s policies
      a.      musical instruments.                d.     clothing.
      b.      furniture.                          e.     all of the above.
      c.      jewelry.
12.   Automobile medical payments insurance commonly has per person limits of
      a.   $1,000 or $2,000.                  d.    any of these amounts.
      b.   $3,000 or $5,000.                  e.    none of these amounts.
      c.   $10,000.

13.   Who is covered under medical payment coverage of your automobile policy?
      a.    Your daughter riding with friends in friend’s car.
      b.    The driver of the car you hit.
      c.    Your spouse while driving your car.
      d.    a and c.
      e.    All of the above.

14.   After packing up to return home for the holidays after the fall semester, Tex stopped at
      Double T bookstore to sell textbooks. After collecting $25, he headed back to his p ickup
      truck only to find a broken window, the truck broken into, and all his suitcases and
      personal property gone. The loss of his personal property and suitcases would be
      covered by
      a.     umbrella liability insurance.
      b.     comprehensive (other than collision) auto coverage.
      c.     property damage liability auto coverage.
      d.     property damage to the property of others (homeowners’ coverage).
      e.     personal property off premises (homeowners’ coverage).

15.   Auto     insurance premiums would be affected by
      a.         auto body type.                    d.    commuting over 50 miles daily.
      b.         auto engine size.                  e.    all of these.
      c.         business usage.

                                          Chapter Ans wers

                True/False Answers                       Multiple Choice Answers
      1.   T               6. T             1.   C           6. E             11. C
      2.   T               7. T             2.   C           7. D             12. D
      3.   T               8. F             3.   E           8. A             13. D
      4.   T               9. T             4.   C           9. D             14. E
      5.   F               10. F            5.   E           10. B            15. E

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