Transcript FIN 230 Exam I Review Session

FIN 230 Exam I Review
Session
Assignment
Assignment
Assignment
Assignment
Assignment
Assignment
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Kathy Gu
Neal Simons
Brian Alvin
Bill Schneider
PC Wong
Eric Lam
Homework #1 Review
State Farm Car Policy:
Your Use of Your Car
Problem #1
Ecstatically happy after U of I’s latest
football win, you swerve into your
driveway really fast. Unfortunately, you hit
your hand-carved mailbox. It costs $1000
to repair your car and $800 to repair the
mailbox. Your policy will pay:
A. $0
B. $900
C. $1600
D. $1700
E. None of the above
Problem #1 - Answer
B. $900
 Collision coverage will cover damages to
your car less a $100 deductible ($1000$100 = $900)
 Damages to your mailbox are not
covered b/c damages to property owned
by an insured are excluded
 $900 + $0 = $900
Problem #2
While driving your car in Mexico, 30.5
miles from the U.S. border, you run
into a deer that had escaped from a
nearby zoo. You incur $500 in
medical bills and it costs $2500 to
repair your car. Your policy will pay:
 A. $0
 B. $2400
 C. $2900
 D. $3000
 E. None of the above
Problem #2 - Answer
D. $3000
 Liability, medical payments, and physical
damages coverages apply in Mexico within
50 miles of the U.S. border
 $500 Medical Payments
 $2500 Comprehensive (Hitting an animal is
Comprehensive)
 $500+$2500 = $3000
Problem #3
You are driving your friend home after a night out at
the bars. You cross over the intersection and crash
into another car. The police officer charges you with
a DUI and fines you $1000. The driver of other car
wins a bodily injury award of $50,000. His 4
passengers win bodily injury awards of $120,000,
$80,000, $115,000, $20,000. It costs $20,000 to
repair their car. Your friend incurs $30,000 in
medical bills and wins a liability award of $40,000.
You incur $40,000 in medical bills yourself. It costs
$800 to repair you car. Your policy will pay:
 A. $0
 B. $320,500
 C. $370,700
 D. $375,700
 E. None of the above
Problem #3 - Answer
C. $370,700
 Bodily Injury Liability Awards: $100,000 per
person / $300,000 per accident limit
 $50,000 + $100,000 + $80,000 + $100,000
+ $20,000 + $40,000= $390,000 (greater
than $300,000 limit)  $300,000 BI Liability
 Property Damage Liability: $100,000 limit
 $20,000
 Medical Payments: $25,000 per person
 $25,000 (friend) + $25,000 (yourself) =
$50,000
 Collision: $800 - $100 Deductible = $700
 $300,000 + $20,000 + $50,000 + $700 =
$370,700
Problem #4
While your car is parked outside the
grocery store, a gang smashes your
windshield and steal the clothes you just
bought at the mall. It costs $400 to
repair your windshield and your clothes
are valued at $500. Your policy will pay:
 A. $0
 B. $300
 C. $500
 D. $900
 E. None of the above
Problem #4 - Answer
E. None of the above ($400)
 Comprehensive: $400
 If loss of clothes and luggage is due
to theft, your entire car must have
been stolen
 $400 + $0 = $400
Problem #5
While driving your car along the
Mississippi River, you accidentally
drive into the river. It costs $75
to tow your car to the nearest
repair location and $4000 to
repair your car. You rent a car for
$30 a day for 5 days until your car
is repaired. Your policy will pay:
 A. $75
 B. $4075
 C. $4200
 D. $4225
 E. None of the above
Problem #5 - Answer
B. $4075
 Emergency Road Service: $75
 Comprehensive: $4000
 NO Car Rental and Travel Expenses
 $75 + $4000 = $4075
Homework #2 Review
State Farm Car Policy:
Uninsured/Underinsured
Problem #1
While driving your car in Utah on vacation, you swerve to
avoid hitting an oncoming driver driving in the wrong
lane and hit a tree. The other driver flees the scene and
is never identified. You incur $30,000 in medical bills. It
costs $11,000 to repair your car. You would be entitled
to a bodily injury award of $90,000 against the other
drive if he could be found.
a) 35,900
b) 36,000
c) 100,900
d) 101,000
e) None of the above
Problem #1 - Answer
Correct answer: A
You are not entitled to collect anything under
uninsured coverage because the driver did not hit you.
In order to be covered under uninsured motor vehicle
coverage, a hit and run driver must strike your vehicle.
Medical payments: $25,000
Collision: $11,000 - $100 deductible = $10,900
Total: $25,000 + $10,900 = $35,900
Problem #2
While driving your car in Mexico 40 miles
from the U.S. border, you are hit by an
uninsured driver. You are injured and incur
$3,000 in medical bills. You are entitled to a
bodily injury award of $75,000 against the
other driver. It also costs $10,000 to repair
your car.
a) 0
b) 12,900
c) 13,000
d) 84,900
e) None of the above
Problem #2 - Answer
Correct answer: B
Even though you are within 50 miles of the US border,
you do not have un(der)insured coverage in Mexico.
Only physical damage, medical payments, and liability
coverage applies within 50 miles of the U.S. border.
Medical: $3,000 in medical coverage
Collision: $10,000 - $100 = $9,900
Total: $3,000 + $9,900 = $12,900
Problem #3
You are driving your car when you are hit
from behind by another driver and seriously
injured. You incur $5,000 in medical bills and
are entitled to a $200,000 bodily injury award
against the other driver. However, the other
driver only carries 20/40/15 liability limits
and no other coverage.
a) 80,000
b) 85,000
c) 105,000
d) 125,000
e) None of the above
Problem #3 - Answer
Correct answer: B
When you have both un(der)insured motorist and
medical payments coverage in the same accident,
your medical payments will pay first. Any
remaining un(der)insured coverage will pay on
top of that.
Medical: $5,000
Underinsured will only pay up to $100,000
including the payments made by the other driver.
So $100,000 - $20,000 = $80,000
Total: $5,000 + $80,000 = $85,000
Problem #4
You are driving with your friend in your car
when you are side-swiped by an uninsured
driver. Both you and your friend incur
$30,000 in medical bills and are each entitled
to a $200,000 bodily injury award.
a)
b)
c)
d)
e)
0
$50,000
$200,000
$250,000
None of the above
Problem #4 - Answer
Correct answer: D
Remember, when you have both un(der)insured
motorist and medical payments coverage in the
same accident, your medical payments will pay
first. Any remaining un(der)insured coverage will
pay on top of that.
Medical: $25,000 + $25,000 = $50,000
Underinsured: $100,000 + $100,000 = $200,000
Total: $50,000 + $200,000 = $250,000
Homework #3 Review
State Farm Car Policy:
- Your Use of Other Cars
- Other People’s Use of Your Car
- Other People’s Use of Other Cars
Brian’s Special Rules
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First decide what type of car it is and if it
is covered
Insurance follows the car, driver pays
excess
Spouse’s 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
Problem #1
Your 21 year old daughter Alice, who lives with
you, has her own car and carries liability with
50/100/25 limits, and uninsured motor vehicle
coverage and underinsured motor vehicle
coverage, both with 50/100 limits with
Travelers, but no other coverages. Alice lets
your son Jake, who lives with you but does not
own a car, borrow her car. Jake runs into a
house, causing $3,000 in damage to her car
and $30,000 in damage to the house.
 A. 0
B. $2,900
C. $7,900
 D. $32,900
E. None of the above
Problem #1 - Answer
Correct answer: C









Non-owned car
Collision: $3,000
Property: $30,000
Alice’s Policy
Property: $25,000
Your Policy
Property: $5,000
Collision: $2,900
Total: $7,900
Problem #2
While on a two week vacation in Florida, you rent
a car. You decline the insurance coverage offered
by the rental agency. On the last day of your
vacation, while you are checking out of the hotel,
the rental car with all your luggage in it is stolen
and never recovered. The rental agency holds
you responsible for the loss. The car had an
Actual Cash Value of $22,000. Your luggage was
worth $500.
 A. 0
B. $500
C. $22,000
 D. $22,200
E. None of the above
Problem #2 - Answer








Correct Answer: D
Non-owned car
Comprehensive: $22,000
Luggage: $500
Your Policy
Comprehensive: $22,000
Luggage: $200
Total: $22,200
Problem #3
You borrow your son Tom’s car for an errand.
Tom lives with you. He has his own insurance
policy with GEICO, with 20/40/15 liability limits,
but no other coverage. While driving his car you
run into a parked car, causing $4,400 damage to
your son’s car and $12,000 damage to the other
car. You are injured in this accident and incur
$1,000 in medical expenses.
 A. 0
B. $4,300
C. $5,300
 D. $17,300
E. None of the above
Problem #3 - Answer

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








Correct Answer: C
Non-owned
Collision: $4,400
Property: $12,000
Med Bills: $1,000
Tom’s Policy
Property: $12,000
Your Policy
Collision: $4,300
Med Bills: $1,000
Total: $5,300
Problem #4
Your neighbor borrows your car one day
and drives up to Marketplace Mall. Your
neighbor has his own car insurance policy
with Progressive Insurance Company, with
the same limits and coverages that you
have on your policy. Your neighbor parks
and is getting out of your car when he falls
to the ground and hits his head. He is in a
coma for 7 days. His medical bills are
$39,000.
A. 0
B. $14,000
C. $25,000
D. $39,000
E. None of the above
Problem #4 - Answer




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Correct Answer: C
Your Car
Med Bills: $39,000
Your Policy
Med Bills: $25,000
Total: $25,000
Problem #5
You borrow your neighbor’s car that is insured by
Progressive with the same limits and coverages
that you have on your policy. You run into a
school bus carrying 40 children. Each child is
injured and incurs $5,000 in medical bills. They all
sue you and each child wins an award for $10,000
in bodily injury damages. Both the school bus and
your neighbor’s car are damaged. It costs
$25,000 to repair the bus, for which you are held
liable, and $15,100 to repair the car. On the good
side, you aren’t injured.


A. 0
B. $100,000
C. $140,000
D. $340,000
E. None of the above
Problem #5 - Answer

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
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



Correct Answer: B
Non-Owned
Med Bills: $200,000
Bodily Liability: $400,000
Property Liability: $25,000
Collision: $15,100
Neighbor’s Policy
Bodily Liability: $300,000
Property Liability: $25,000
Collision: $15,000
Your Policy
Bodily Liability: $100,000
Homework #4 Review
- Introduction to Risk and Insurance
- Fundamental Doctrines of Insurance
- Insurance Contracts
Problem #1
Calculate the expected loss for bodily
injury liability insurance if the loss
frequency is 27 in 500 and the loss
severity is $4000.





A. $216
B. $432
C. $2,400
D. $74,000
E. None of the above
Problem #1 - Answer


Correct Answer: A. $216
Explanation:
Expected loss = (loss frequency)(loss severity)
Expected loss = (27/500)($4,000)
Expected loss = $216
Problem #2
You, a 21-year-old junior are at an Illini
Baseball game. You see your 22-year-old
co-worker Jeff, who has had too much to
drink at the game and is intoxicated. You
ask him to cover your shift at the ice cream
shop next Friday night. In return, you will
pay Jeff $15. He agrees to the deal, and
you do not notify your manager. Next
Friday night, Jeff fails to show up and you
are fired for your absence since your
manager expected you to show up. You sue
Jeff for losing your job. Which of the
requirements for a contract is missing?
Problem #2 - Choices





A. Offer and acceptance
B. Consideration
C. Competent parties
D. Legal purpose
E. None are missing
Problem #2 - Answer


Correct Answer: C. Competent parties
Explanation: Pg. 81 in the Pritchett text
discusses the issue of competent parties.
An insane or intoxicated party is not
considered a competent party. Only in rare
instances are minors considered competent
parties.
Problem #3
Insurance for failing out of the
University of Illinois violates which ideal
requisite for insurability:





A. Many similar exposure units
B. Fortuitous losses
C. Definite losses
D. Small possibility of a catastrophe
E. Economic Feasibility
Problem #3 - Answer


Correct Answer: B. Fortuitous losses
Explanation: The definition of fortuitous
losses in the Pritchett text is, “losses that
occur as a matter of chance [and] losses
are not controlled or influenced by the
insured.” Thus, this is a fortuitous loss
since you can control whether you do or do
not fail.
Problem #4
You purchase a life insurance policy on your
spouse. Ten years later you divorce, and
the following year your ex-spouse dies.
Which one of the following statements will
apply?
Problem #4 - Choices





A. You can collect on this policy because
this is a contract of adhesion
B. You cannot collect on the policy because
you misstated a material fact
C. You can collect on this policy because
you had an insurable interest at the proper
time
D. You cannot collect on this policy because
you no longer have an insurable interest
E. You can collect on this policy because
you bought the policy in utmost good faith
Problem #4 - Answer


Correct Answer: C. You can collect on
this policy because you had an
insurable interest at the proper time
Explanation: Pg. 87 in Pritchett states that,
“ life insurance requires an insurable
interest only at the inception of the
contract.” This holds true since you had an
insurable interest in your spouse since you
were still married at the inception of the
policy.
Homework #5 Review
- Introduction to Risk and Insurance
- Buying Insurance
Problem #1
Which of the following is the best reason that
the State Farm Car policy excludes coverage
for driving in Europe?
A.
To make the policy economically feasible
B.
To standardize the risk
C.
To reduce the risk of a catastrophe
D.
To avoid losses that are not fortuitous
E.
Because this is a contract of adhesion
Problem #1 - Answer
Which of the following is the best reason that
the State Farm Car policy excludes coverage
for driving in Europe?
A.
To make the policy economically feasible
B.
To standardize the risk
C.
To reduce the risk of a catastrophe
D.
To avoid losses that are not fortuitous
E.
Because this is a contract of adhesion
Problem #2
Which of the following factors should be the
most important consideration when trying to
decide whether or not to buy insurance from
a particular insurer?
A.
Its rates are the lowest of any insurer
B.
It has a very low complaint ratio from the
state of Illinois
C.
The company issues binders
D.
It is rated B- by A.M. Best
E.
Consumer reports indicates that the
customer satisfaction rating is over 90 for
this company
Problem #2 - Answer
Which of the following factors should be the
most important consideration when trying to
decide whether or not to buy insurance from
a particular insurer?
A.
Its rates are the lowest of any insurer
B.
It has a very low complaint ratio from the
state of Illinois
C.
The company issues binders
D.
It is rated B- by A.M. Best
E.
Consumer reports indicates that the
customer satisfaction rating is over 90 for
this company
Problem #3
You have an auto policy with State Farm. However, the
nearest State Farm agent is 100 miles away. Howie,
your cousin, has just built a new car out of spare parts
lying around the yard. Illinois law requires that he have
insurance on his new vehicle. You copy your policy and
tell Howie to give you a check for the same amount of
premium. You forward this check to State Farm with a
letter indicating that your cousin needs some liability
insurance. Later that month, Howie’s bank statement
indicates that State Farm has deposited his check. Are
you State Farm’s new agent?
A. Yes, by waiver
B. Yes, by estoppel
C. No, not a mutual acceptance
D. No, invalid agency
E. None of the above
Problem #3 - Answer
You have an auto policy with State Farm. However, the
nearest State Farm agent is 100 miles away. Howie,
your cousin, has just built a new car out of spare parts
lying around the yard. Illinois law requires that he have
insurance on his new vehicle. You copy your policy and
tell Howie to give you a check for the same amount of
premium. You forward this check to State Farm with a
letter indicating that your cousin needs some liability
insurance. Later that month, Howie’s bank statement
indicates that State Farm has deposited his check. Are
you State Farm’s new agent?
A. Yes, by waiver
B. Yes, by estoppel
C. No, not a mutual acceptance
D. No, invalid agency
E. None of the above
Problem #4
When buying homeowners insurance, all things
being equal, you would prefer an agent with
the following designation:
A.
B.
C.
D.
E.
CLU
ChFc
CFP
CPCU
FSA
Problem #4 - Anwer
When buying homeowners insurance, all things
being equal, you would prefer an agent with
the following designation:
A.
B.
C.
D.
E.
CLU
ChFc
CFP
CPCU
FSA
Problem #5
Insuring investors in mutual funds against
investment losses violates which one of the
following ideal requisites for insurability most
seriously?
A.
B.
C.
D.
E.
Large number of similar exposure units
Fortuitous losses
Catastrophe unlikely
Definite losses
Economic
Problem #5 - Answer
Insuring investors in mutual funds against
investment losses violates which one of the
following ideal requisites for insurability most
seriously?
A.
B.
C.
D.
E.
Large number of similar exposure units
Fortuitous losses
Catastrophe unlikely
Definite losses
Economic
Homework #6 Review
U of I Student Health Insurance
Policy
Problem #1
You realized you are due for your tetanus shot
so you go to your doctor to get vaccinated.
While at the doctor’s office you get a yearly
physical exam. The doctor charges you $200
for the visit, $100 for the physical exam and
$50 for the tetanus shot.


A. 0
D. 160
B.
E.
80
C.
120
None of the Above
Problem #1 - Answer
Correct Answer: A
There are 31 exclusions: Page 14 – 15
13. Immunizations…
23. Routine physical examinations…
First, ask yourself if the injury is covered
Problem #2
One night you are stricken with a 104 degree
temperature so you decide to go to the emergency room.
The doctor performs some laboratory tests and
prescribes you some medicine. Two days later, you now
start throwing up so you rush back to the emergency
room where the doctor performs even more laboratory
tests and prescribes you new medicine. You are charged
$200 for each emergency room visit, $100 for each set
of medicine and $200 for each set of laboratory tests.


A. $320
D. $600
B.
E.
$440
C.
None of the above
$480
Problem #2 - Answer
st
1 ER Visit
ER treatment
2
nd
ER Visit
200
200
0
0
Laboratory Tests
200
200
Total
400
400
-150
0
ER Deductible ($50)
-50
-50
Total
200
350
200 * 0.8 = 160
350 * 0.8 = 280
Medicine (Not Covered)
Outpatient Deductible
($150)
Insurance pays 80% of first
$10,000 in medical cost:
Answer: B. 160 + 280 = 440
Problem #2 - Answer
Know how to apply the deductibles:
Outpatient:
 Outpatient: $150 per policy year
 ER deductible :$50 per visit
In-patient:
 In-patient: $100 per injury
 No ER deductible

Problem #3
You seriously injure your back while flying your
own plane. You are hospitalized for 10 days
and have surgery. You are billed $500 per day
room and board, $3,000 for medical supplies
while hospitalized, $5,000 for the surgery and
$1,200 for an assistant surgeon.
 A. 0
 B. $11,280
 C. $12,100
 D. $13,000
 E. None of the above
Problem #3 - Answer
In-Hospital Expense Benefit
Room and Board
$500
Medical Supplies
x
10 days
Deductible
80% of first $10,000
Surgeon
Assistant Surgeon
7900
$ 5,000
$ 1,200
x
x
6320
Answer: B.
$11,280
x 80 %
$
$
$
$
$
$
5,000
3,000
8,000
(100)
7,900
6,320
80% = $
80% = $
$
4,000
960
4,960
+ 4960 = $
11,280
Problem #3 - Answer
Know the in-hospital expenses
In-patient hospital expenses includes:
Operating room charges, drugs, blood and blood
plasma, X-rays, radiation treatments, laboratory
tests, surgical dressings, and medical supplies
Pg 9 of Health Policy
These expenses use the:
$100 Deductible
80% of next $10,000
100% of balance of room and board and other
hospital expenses incurred