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FIN 230 Final Exam Review Session

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  1. FIN 230 Final Exam Review Session Brian Alvin, Kathy Gu, Eric Lam, Neal Simons, Bill Schneider, and PC Wong

  2. Final Exam Locations Tuesday, December 11, 2007 – 8-11 AM VERY IMPORTANT – You must take the exam in the right room! Show up on time! Late arrivals may not be allowed to take the exam. Last Name BeginsExam Room A-O 141 Wohlers Hall P-Te 2 Education Th-Z 166 Education

  3. Final Exam • Exam is open-book, open note • Exam will consist of 40 multiple choice questions • Bring to the exam: • #2 Pencils • Calculator • Car and Health Policies • Textbook for Life and Homeowners policies and the mortality table (Appendices A, E and F)

  4. Study Tips • Organize your notes, homework, and exams • Know exactly where things are that you will need to reference • Redo all of the homework • Go through and rework every question • Go online to see each question explained • Think critically about each question and how the answer would change if certain things in the question changed • Write down a summary of all the exclusions, or where to find them for each policy

  5. Homework #1 Review State Farm Car Policy: Your Use of Your Car

  6. Auto Policy 1 You are backing out of your driveway when you hit your mailbox and an oncoming car. Your mailbox incurs $500 of damage, your car costs $2,100 to repair, and the other car costs $2,400 to repair. The driver of the other car incurs $2,000 of medical bills and is entitled to a $20,000 bodily injury reward. Your auto policy will pay: A. $0 B. $6,400 C. $27,400 D. $27,900 E. None of the above

  7. Auto Policy Answer 1 E. None of the above - $24,400 Your mailbox is not covered because your auto policy does not cover damages to your property. 2,000 Collision (2,100 – 100 Deductible) + 2,400 Property Damage + 20,000 Bodily Injury Liability (includes med bills) 24,400

  8. Auto Policy 2 Your car is stolen, and you immediately report this to State Farm. You rent a car for $30 a day. State Farm offers to pay you for the loss 8 days after it was stolen. The ACV of your car was $12,000. Your auto policy will pay: • $0 • $12,000 • $12,200 • $12,240 • None of the above

  9. Auto Policy Answer 2 C. $12,200 If your car is stolen, your policy will pay up to $25 per day for transportation costs. 25*8= 200 + 12,000 Comprehensive 12,200

  10. Homework #2 Review State Farm Car Policy: Uninsured/Underinsured

  11. Un(der)insured Basics Only covered for un(der)insured in United States and its territories or Canada Un(der)insured covers only bodily injury for you and people in your car If you are not hit by a hit and run driver, your uninsured coverage will not pay! Underinsured will only pay to bring the total coverage of the other driver to 100,000 This includes the driver’s existing coverage Ie. Driver with 15,000 bodily injury liability coverage hits you. Your underinsured will cover up to 85,000 (100,000-15,000)

  12. Un(der)insured Basics (cont.) You can get both un(der)insured coverage and medical payments coverage for the same accident Medical payments pays first Any remaining bodily injury award will be covered under your un(der)insured coverage Example: You are hit by an uninsured driver and incur 10,000 in medical bills. You sue the driver and are entitled to a 200,000 bodily injury award. Medical payments coverage will pay 10,000 200,000-10,000 = 190,000 in bodily injury remains Your insured coverage has a limit of 100,000 So in total, your policy will pay 10,000 (med) + 100,000 (uninsured) = 110,000

  13. Problem #1 While driving your car in California after seeing the Illini demolish the Trojans, you are hit by a car and severely injured. You incur $40,000 in medical bills and are entitled to a $180,000 bodily injury award but the other driver only has 25/50/100 in coverage. Your car costs $11,000 to repair. a) 25,000 b) 100,000 c) 125,000 d) 135,900 e) None of the above

  14. Problem #1 - Answer Correct answer: B The other driver will pay the entire cost to repair your car. He will also pay $25,000 of your bodily injury award. Medical: 40,000  25,000 (limit) Underinsured:180,000 - 25,000 – 25,000 = 130,000  75,000 (limit) (100,000 – 25,000) Total: 100,000

  15. Problem #2 You are walking to your FIN 230 Final when one of your classmates, afraid of being late, comes speeding down the street and hits you. You incur $40,000 in medical bills and would be entitled to a $200,000 bodily injury award but the other student is uninsured. a) 0 b) 25,000 c) 40,000 d) 125,000 e) None of the above

  16. Problem #2 - Answer Correct answer: D Both medical and un(der)insured coverage apply if you a struck by a motor vehicle as a pedestrian Medical: $25,000 in medical coverage Uninsured: $200,000 - $25,000 = $175,000, but $100,000 limit Total: $25,000 + $100,000 = $125,000

  17. 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

  18. HW #3 Question 1 Your 17 year old son Allen, who lives with you, borrows your car one evening. Unknown to you, he lets his 15 year old girlfriend drive your car. She obviously needs practice, since she backs into a gas pump, damaging the pump and starting a fire that destroys the gas station and your car. Fortunately, neither Allen nor his girlfriend is injured in the accident. It costs $1,275,000 to repair the gas station. Your car has an ACV of $12,000. A) 0 B) $12,000 C) $111,900 D) $1,287,000 E) None of the above

  19. HW #3 Answer 1 You are covered because it is your car. If you were driving your son’s car it would not be covered. You driving Allen’s girlfriend’s car would be covered. $100,000 Property Liability $12,000 Comprehensive $112,000 Comprehensive b/c fire destroys car not accident.

  20. HW #3 Question 2 Your 18 year old daughter Sarah, who lives with you, borrows your car one day to go shopping with her friends. On the way to the mall they are involved in an accident that is Sarah’s fault. Two of her friends are seriously injured. One incurs medical bills of $15,000 and is entitled to a bodily injury award of $30,000. The other incurs medical bills of $45,000 and is entitled to a bodily injury award of $135,000. Your daughter is not injured in the accident, but she is ticketed for running a red light and fined $300. A) 0 B) $40,000 C) $130,000 D) $155,000 E) None of the above

  21. HW #3 Answer 2 Covered b/c it is your car. Fine is not covered $30,000 Bodily Injury Liability $125,000 Bodily Injury Liability (limit $100,000) and Medical Payments $155,000 Total

  22. Homework #4 Review - Introduction to Risk and Insurance - Fundamental Doctrines of Insurance - Insurance Contracts

  23. Problem #1 You see a commercial on TV advertising identity theft protection. The protection will cost you $50 a year. Your odds each year of being a victim of identity theft are 1 out of 100. The expected loss from identity theft is $4,500. Which of the following risk types would purchase this coverage? I Risk averse II Risk neutral III Risk seeker A. I only B. I and II only C. II and III only D. I, II, and III E. None of the above

  24. Problem #1 - Answer • Answer:A. I only • Explanation: Expected loss = frequency * severity =.01 * $4,500 =$45 The identity theft protection costs $50, which is greater than the $45 expected loss. Therefore, a risk averse individual would purchase this coverage.

  25. Problem #2 You are on vacation in the Bahamas and want to go scuba diving. Before you are allowed to go on your first dive, you must take a training course to avoid drowning. Which method of handling pure risk does this training course demonstrate? • A. Avoidance • B. Transfer • C. Loss prevention • D. Morale hazard • E. Societal hazard

  26. Problem #2 - Answer • Answer:C. Loss prevention • Explanation: Loss prevention – reduces the probability/frequency of a loss Avoidance – usually not practical, means avoiding the activity Transfer – Shifting the risk, often from a financial aspect, to another party Loss reduction – reduces the severity of a loss Retention – when the risk is maintained and not shifted to another party

  27. Problem #3 You, a 21 year old senior are at the Rose Bowl, and you see your 23 year old co-worker Moe. You ask him if he can cover your shift at the Law Library next Friday afternoon. In return, you will pay him $20. He agrees to the deal but you do not notify your manager. However, Moe fails to show up to work next Friday afternoon, and you are fired for your absence. You sue Moe for the loss of your job. Which, if any, of the requirements for a contract would be missing? • A. Offer and acceptance • B. Consideration • C. Competent parties • D. Legal purpose • E. None are missing

  28. Problem #3 - Answer • Answer:E. None are missing • Explanation: Offer and acceptance – You make an offer and your co-worker accepts Consideration – You get a day off, and you give your co-worker $20 Competent parties - You and your co-worker have reached majority, are of sound mind, and are not intoxicated Legal purpose – Having a co-worker fill-in for you is a legal activity Legal form - ???

  29. Homework #5 Review - Introduction to Risk and Insurance - Buying Insurance

  30. Question 1 Based on the large loss principle, which of the following is the least important coverage in your State Farm Car Policy? A. Collision B. Comprehensive C. Liability D. Emergency Road Service E. Un(der)insured

  31. Question 1 - Answer Based on the large loss principle, which of the following is the least important coverage in your State Farm Car Policy? A. Collision B. Comprehensive C. Liability D. Emergency Road Service E. Un(der)insured

  32. Question 2 Your neighbor, who has his own insurance policy with Allstate with the same coverages you have with your State Farm Policy, borrows your car and runs into a tree, causing $2500 in damage to your car. Which of the following provisions keeps you from collecting for this loss under both your policy and your neighbor’s A. Lack of an insurable interest B. Subrogation C. Other insurance provision D. Estoppel E. none of the above

  33. Question 2 - Answer Your neighbor, who has his own insurance policy with Allstate with the same coverages you have with your State Farm Policy, borrows your car and runs into a tree, causing $2500 in damage to your car. Which of the following provisions keeps you from collecting for this loss under both your policy and your neighbor’s A. Lack of an insurable interest B. Subrogation C. Other insurance provision D. Estoppel E. none of the above

  34. Question 3 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

  35. Question 3 - 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

  36. Homework #6 Review U of I Student Health Insurance Policy

  37. Deductibles • In-patient • $100 per injury • No ER deductible • Outpatient • $150 per policy year • ER deductible: $50 per visit

  38. Acupuncture Learning disabilities Cosmetic Procedures… Dental treatment… Elective surgery Eye exams… Foot care… Immunizations… Injury cause from alcohol… Organ transplants Participation in riots… Prescription drugs… Routine physical exams… Skeletal irregularities Sleep disorders Suicide or attempted suicide… Weight management… Exclusions Page 14

  39. Limits • $200,000 for each injury or sickness • $75,000 for intercollegiate, club, and intramural sports • $20,000 lifetime maximum for Psychiatric and Drug Abuse Treatment • Inpatient – same as other sickness • Outpatient – 50% of charge up to a max of $35 for 45 days max per policy year

  40. In-Hospital Expense Benefit • $100 Deductible, then 80% of the first $10,000, then 100% of the balance of room and board and in-hospital expenses • In-hospital expenses includes: • Operating room • Drugs • Blood and blood plasma • X-ray examinations • Radiation treatments • Laboratory tests • Surgical dressings • Medical supplies while Hospital confined

  41. Inpatient - Benefit shall be 80%... • Surgery • Assistant Surgeon • Anesthesia • Ambulance • Durable Medical Equipment

  42. Diagnostic Procedure Expense Benefit • Lower of 80% of usual and customary or actual charges subject to limits of: • CT Scans: $800 • MRI: $1,200 • Nuclear imaging: $782

  43. Question 1 You fall and hit your head on your desk. Your roommate calls an ambulance to drive you to the emergency room. The doctor runs a CT scan. The test confirms that you are okay, just a bad bump. You are billed $100 for the ambulance, $1200 for the CT, and $400 for the emergency room visit. • A. $1040 B. $1080 C. $1120 • D. $1200 E. None of the above

  44. Question 1 - Answer You fall and hit your head on your desk. Your roommate calls an ambulance to drive you to the emergency room. The doctor runs a CT scan. The test confirms that you are okay, just a bad bump. You are billed $100 for the ambulance, $1200 for the CT, and $400 for the emergency room visit. • A. $1040 B. $1080 C. $1120 • D. $1200 E. None of the above CT Scan: Lower of: 1200*0.80 = 960 or 800 Ambulance: 100*0.80 = 80 ER visit: 400-150-50=200*0.80 = 160 800+80+160 = 1040

  45. Question 2 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 x-rays, $10,000 for the surgeon, $2,500 for the assistant surgeon and $4,000 for the anesthesia (which is administered by a licensed Physician who remained in constant attendance during your operation). • A. 0 B. $12,050 C. $24,100 • D. $24,500 E. None of the above

  46. Question 2 - Answer 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 x-rays, $10,000 for the surgeon, $2,500 for the assistant surgeon and $4,000 for the anesthesia (which is administered by a licensed Physician who remained in constant attendance during your operation). • A. 0 B. $12,050 C. $24,100 • D. $24,500 E. None of the above

  47. Question 2 - Explanation

  48. Question 3 You visit a licensed clinical psychologist once a week for ten weeks during the semester. You are charged $80 per visit. A. 0 B. $160 C. $350 D. $400 E. None of the above

  49. Question 3 - Answer You visit a licensed clinical psychologist once a week for ten weeks during the semester. You are charged $80 per visit. A. 0 B. $160 C. $350 D. $400 E. None of the above 10 total visits * Lesser of( $35 or 50% of $80) = 10 * $35 = $350

  50. Homework #7 Review Coordination of Benefits Introduction to Life Insurance