Fin 230 Review Session

1. Fin 230 Review Session Exam 2 Brian Alvin balvin2@uiuc.edu Bryan Brooks bbrooks1@uiuc.edu Brett Engel bengel@uiuc.edu Amanda Kastle kastle@uiuc.edu Katie Kimble kkimble2@uiuc.edu Laura Nemeth lnemeth2@uiuc.edu

2. Overview • Auto and Health Policy Review • Reduction of Benefits (HW #7) • Life Insurance • Types (HW #7) • Benefits (HW #8) • Cost Comparisons (HW #9) • Liability Exposures (HW #9) • Homeowners Insurance (HW #10)

3. Auto Review

4. Auto Review Your daughter lives with you and has her own car. Since her insurance premiums have increased substantially, she decides to cancel her car insurance on October 10, 2006, but she doesn’t tell you this. You borrow her car on October 20,2006. While driving her car, you run into a tree, injuring yourself and her car. Your medical bills are $30,000. It costs $10,400 to repair your daughter’s car; the Actual Cash Value of her car before the accident was $9,000. • $0 • $33,900 • $35,300 • $38,900 • None of the above

5. Auto Review Your daughter lives with you and has her own car. Since her insurance premiums have increased substantially, she decides to cancel her car insurance on October 10, 2006, but she doesn’t tell you this. You borrow her car on October 20,2006. While driving her car, you run into a tree, injuring yourself and her car. Your medical bills are $30,000. It costs $10,400 to repair your daughter’s car; the Actual Cash Value of her car before the accident was $9,000. • $0 • $33,900 • $35,300 • $38,900 • None of the above

6. Auto Review You borrow your neighbor’s car, which is covered under a policy with Fireman’s Fund with the same coverages and limits you have on your car. You lose control of the car and hit a pedestrian. The pedestrian sues you and wins a bodily injury award of $250,000. • $0 • $25,000 • $100,000 • $150,000 • None of the above

7. Auto Review You borrow your neighbor’s car, which is covered under a policy with Fireman’s Fund with the same coverages and limits you have on your car. You lose control of the car and hit a pedestrian. The pedestrian sues you and wins a bodily injury award of $250,000. • $0 • $25,000 • $100,000 • $150,000 • None of the above

8. Auto Review While on a two week vacation in Los Angeles, you rent a car. You decline the insurance coverage offered by the rental agency. On the last day of your vacation, you run into a low hanging branch, breaking the front windshield and damaging the hood. It costs $600 to replace the windshield and $1,500 to repair the hood. The rental agency holds you responsible for the loss. • $0 • $600 • $2,000 • $2,100 • None of the above **Answer in the lectures notes for non-owned cars**

9. Auto Review While on a two week vacation in Los Angeles, you rent a car. You decline the insurance coverage offered by the rental agency. On the last day of your vacation, you run into a low hanging branch, breaking the front windshield and damaging the hood. It costs $600 to replace the windshield and $1,500 to repair the hood. The rental agency holds you responsible for the loss. • $0 • $600 • $2,000 • $2,100 • None of the above **Answer in the lectures notes for non-owned cars**

10. Health Policy Review

11. Health Policy Review While hiking in the mountains of Colorado, you trip and knock yourself unconscious. An air ambulance flies you to the nearest hospital emergency room. The doctor does an X-ray and CT scan on you, and finds out that you are able to go home to recuperate. You are billed $2,000 for air ambulance, $750 for the CT scan, $200 for the x-rays and $300 for the treatment in the emergency room. • $0 • $1,090 • $1,840 • $2,000 • None of the above

12. Health Policy Review While hiking in the mountains of Colorado, you trip and knock yourself unconscious. An air ambulance flies you to the nearest hospital emergency room. The doctor does an X-ray and CT scan on you, and finds out that you are able to go home to recuperate. You are billed $2,000 for air ambulance, $750 for the CT scan, $200 for the x-rays and $300 for the treatment in the emergency room. • $0 • $1,090 • $1,840 • $2,000 • None of the above

13. Health Policy Review You failed your goal-setting project for Fin 230 and realize that everyone else got A’s. You are really depressed and want to snap out of your depression. You see a psychiatrist 2 times each week for a year. Each session with your psychiatrist costs you $90/visit • $0 • $1,575 • $4,680 • $7,488 • None of the above

14. Health Policy Review You failed your goal-setting project for Fin 230 and realize that everyone else got A’s. You are really depressed and want to snap out of your depression. You see a psychiatrist 2 times each week for a year. Each session with your psychiatrist costs you $90/visit • $0 • $1,575 • $4,680 • $7,488 • None of the above

15. Health Policy Review After you have been waiting for 4 years for a new kidney, doctors finally find one. You are charged $500 a day for the hospital room, $30,000 for the operating room, $45,000 in drugs & supplies. The surgeon charges you $100,000 and the assistant surgeon charges you $50,000. You stay in the hospital for 25 days. • $0 • $177,900 • $185,400 • $187,500 • None of the above

16. Health Policy Review After you have been waiting for 4 years for a new kidney, doctors finally find one. You are charged $500 a day for the hospital room, $30,000 for the operating room, $45,000 in drugs & supplies. The surgeon charges you $100,000 and the assistant surgeon charges you $50,000. You stay in the hospital for 25 days. • $0 • $177,900 • $185,400 • $187,500 • None of the above ($205,400)

17. HW #7

18. Use for questions 1 & 2 You are driving your car along Green Street when a squirrel darts out in front of your car. You swerve to avoid hitting the animal, but you lose control and crash into a light pole. An ambulance races you to Carle Hospital where you are hospitalized for 20 days and undergo extensive surgery. The surgeon charges you $40,000 for the surgery, the assistant surgeon charges $9,000 and the anesthesia costs $20,000. The anesthetist personally administered the anesthesia and remained in constant attendance during the surgery. You are billed $500 per day for the hospital room and board, $5,000 for the operating room expenses and $2,500 for medicine while in the hospital. You are billed $500 for the ambulance ride. It costs $9,000 to repair your car, which had a $15,000 cash value at the time of the loss.

19. Health Insurance What is the Initial Benefit Payment under the U of I Undergraduate Student Insurance Plan? • $0 • $35,500 • $35,825 • $42,450 • None of the above

20. Health Insurance What is the Initial Benefit Payment under the U of I Undergraduate Student Insurance Plan? • $0 • $35,500 • $35,825 • $42,450 • None of the above

21. Health Insurance What is the Total Payment the U of I Undergraduate Student Insurance Plan will make on this loss? • $0 • $53,100 • $62,000 • $71,000 • None of the above

22. Health Insurance What is the Total Payment the U of I Undergraduate Student Insurance Plan will make on this loss? • $0 • $53,100 • $62,000 • $71,000 • None of the above

23. Life Insurance Based on the Commissioners 1980 Standard Mortality Table (Appendix F in the text), how old would a male be when he lived has lived half his total life expectancy (within 1 year)? • 24 • 37 • 39 • 50 • None of the above

24. Life Insurance Based on the Commissioners 1980 Standard Mortality Table (Appendix F in the text), how old would a male be when he lived has lived half his total life expectancy (within 1 year)? • 24 • 37 • 39 • 50 • None of the above

25. Life Insurance A 30-year-old female purchased a $100,000 whole life policy for $1,500 a year. She receives dividends of $5,000 over time. At age 60, she surrenders that policy for $70,000. If this individual is in the 28% tax bracket at that point, how much does she have to pay in taxes when she surrenders the policy? • $0 • $5,600 • $8,400 • $30,000 • None of the above

26. Life Insurance A 30-year-old female purchased a $100,000 whole life policy for $1,500 a year. She receives dividends of $5,000 over time. At age 60, she surrenders that policy for $70,000. If this individual is in the 28% tax bracket at that point, how much does she have to pay in taxes when she surrenders the policy? • $0 • $5,600 • $8,400 • $30,000 • None of the above

27. Life Insurance Which of the following would be the most appropriate for an individual who is looking for a tax sheltered investment and is willing to accept risk in hopes of a higher return? • Re-entry term • Endowment life • Whole life • Yearly renewable term • Variable life

28. Life Insurance Which of the following would be the most appropriate for an individual who is looking for a tax sheltered investment and is willing to accept risk in hopes of a higher return? • Re-entry term • Endowment life • Whole life • Yearly renewable term • Variable life

29. HW #8

30. If an individual wants no uncertainty in an insurance policy, which type of life insurance would he or she be most comfortable with? • Variable Life • Universal Life • Whole Life • Variable Universal • Re-entry Term

31. If an individual wants no uncertainty in an insurance policy, which type of life insurance would he or she be most comfortable with? • Variable Life • Universal Life • Whole Life • Variable Universal • Re-entry Term

32. John surrenders the policy on August 1, 2003 and selects the paid up insurance option. If he dies in a fire on August 15, 2019, how much will his wife Jane receive from the insurance company? • $0 • $8,528 • $30,500 • $100,000 • None of the above

33. John surrenders the policy on August 1, 2003 and selects the paid up insurance option. If he dies in a fire on August 15, 2019, how much will his wife Jane receive from the insurance company? • $0 • $8,528 • $30,500 • $100,000 • None of the above

34. John Doe pays his first five premiums on time, but then he gets amnesia and forgets to pay the rest of the premiums. If John dies on October 31, 2010, how much will his wife Jane receive from the insurance company? • $0 • $4,588 • $18,700 • $100,000 • None of the above

35. John Doe pays his first five premiums on time, but then he gets amnesia and forgets to pay the rest of the premiums. If John dies on October 31, 2010, how much will his wife Jane receive from the insurance company? • $0 • $4,588 • $18,700 • $100,000 • None of the above

36. John dies on August 7, 2046 from old age. His wife Jane with an adjusted age of 85 elects to receive joint and survivor life income with her son, Tom, who has an adjusted age of 60. What is the minimum monthly benefit they will receive? • $0 • $4.40 • $440 • $480 • None of the above

37. John dies on August 7, 2046 from old age. His wife Jane with an adjusted age of 85 elects to receive joint and survivor life income with her son, Tom, who has an adjusted age of 60. What is the minimum monthly benefit they will receive? • $0 • $4.40 • $440 • $480 • None of the above

38. If John Doe had lied on the policy application about his health, but the insurance company did not find out about the lie until John’s death on August 1, 2005, how much would Jane receive as a benefit? • $0 • $11,411 • $15,330 • $100,000 • None of the above

39. If John Doe had lied on the policy application about his health, but the insurance company did not find out about the lie until John’s death on August 1, 2005, how much would Jane receive as a benefit? • $0 • $11,411 • $15,330 • $100,000 • None of the above

40. HW #9

41. Life Insurance Cost Comparisons • Use the following information for the next 5 questions about a Whole Life policy Face amount $275,000 Annual Premium $3,700 Dividends In year 20 $3,575 First 20 years total $19,500 Cash Values End of 19th year $74,000 End of 20th year $81,000 Accumulated Value of Dividends at The end of 20 years at 7.25% $48,250

42. Traditional Net Cost What is the 20 year traditional net cost index per $1,000 of coverage? • -7.64 • -4.82 • -3.55 • 1.14 • None of the above

43. Traditional Net Cost What is the 20 year traditional net cost index per $1,000 of coverage? • -7.64 • -4.82 • -3.55 • 1.14 • None of the above

44. Interest Adjusted Surrender Cost What is the 20 year interest adjusted surrender cost index per $1,000 of coverage based on a 7.25% interest rate? • 2.09 • 3.05 • 3.61 • 6.76 • None of the above

45. Interest Adjusted Surrender Cost What is the 20 year interest adjusted surrender cost index per $1,000 of coverage based on a 7.25% interest rate? • 2.09 • 3.05 • 3.61 • 6.76 • None of the above

46. Interest Adjusted Net Payment Cost What is the 20 year interest adjusted net payment cost index per $1,000 of coverage based on a 7.25% interest rate? • 6.47 • 9.57 • 11.89 • 12.65 • None of the above

47. Interest Adjusted Net Payment Cost What is the 20 year interest adjusted net payment cost index per $1,000 of coverage based on a 7.25% interest rate? • 6.47 • 9.57 • 11.89 • 12.65 • None of the above

48. Interest Adjusted Net Payment Cost What is the 20 year equivalent annual dividend per $1,000 of coverage based on a 7.25% interest rate? • 1.57 • 5.88 • 10.68 • 13.45 • None of the above

49. Interest Adjusted Net Payment Cost What is the 20 year equivalent annual dividend per $1,000 of coverage based on a 7.25% interest rate? • 1.57 • 5.88 • 10.68 • 13.45 • None of the above (3.88)

50. Yearly Rate of Return What is the yearly rate of return for the 20th policy year if the annual renewable term rate for this individual is 1.65 per 1,000? • 0.2% • 4.7% • 9.3% • 30.2% • None of the above