FIN 230 Exam I Review Session

Assignment 1: Kathy GuAssignment 2: Neal SimonsAssignment 3: Brian AlvinAssignment 4: Bill SchneiderAssignment 5: PC WongAssignment 6: Eric Lam

Homework #1 Review

State Farm Car Policy:Your Use of Your Car

Ecstatically happy after U of I’s latestfootball win, you swerve into yourdriveway really fast. Unfortunately, you hit your hand-carved mailbox. It costs $1000 to repair your car and $800 to repair themailbox. Your policy will pay:A. $0B. $900C. $1600D. $1700E. None of the above

Problem #1

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 #3You are driving your friend home after a night out atthe 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 thegrocery 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 #5While 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 #1While 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) 35,900b) 36,000c) 100,900d) 101,000e) 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 = $10,900Total: $25,000 + $10,900 = $35,900

Problem #2While 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) 0b) 12,900c) 13,000d) 84,900e) 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 = $9,900Total: $3,000 + $9,900 = $12,900

Problem #3You 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) 80,000b) 85,000c) 105,000d) 125,000e) None of the above

Problem #3 - AnswerCorrect 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: $5,000Underinsured 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 #4You 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) 0b) $50,000c) $200,000d) $250,000e) None of the above

Problem #4 - AnswerCorrect answer: D

Remember, when you have both un(der)insuredmotorist 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 = $50,000Underinsured: $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

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 withyou, 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 - AnswerCorrect 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 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 #4Your neighbor borrows your car one dayand 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. $25,000D. $39,000 E. None of the above

Problem #4 - Answer Correct Answer: C

Your Car Med Bills: $39,000

Your Policy Med Bills: $25,000 Total: $25,000

Problem #5You 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 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 feasibleB. To standardize the riskC. To reduce the risk of a catastropheD. To avoid losses that are not fortuitousE. 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 feasibleB. To standardize the riskC. To reduce the risk of a catastropheD. To avoid losses that are not fortuitousE. Because this is a contract of adhesion

Problem #2Which 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 - AnswerWhich 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 #3You 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 waiverB. Yes, by estoppelC. No, not a mutual acceptanceD. No, invalid agencyE. None of the above

Problem #3 - AnswerYou 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 waiverB. Yes, by estoppelC. No, not a mutual acceptanceD. No, invalid agencyE. None of the above

Problem #4

When buying homeowners insurance, all things being equal, you would prefer an agent withthe following designation:

A. CLUB. ChFcC. CFPD. CPCUE. FSA

Problem #4 - Anwer

When buying homeowners insurance, all things being equal, you would prefer an agent withthe following designation:

A. CLUB. ChFcC. CFPD. CPCUE. FSA

Problem #5

Insuring investors in mutual funds against investment losses violates which one of the following ideal requisites for insurability most seriously?

A. Large number of similar exposure unitsB. Fortuitous lossesC. Catastrophe unlikelyD. Definite lossesE. 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. Large number of similar exposure unitsB. Fortuitous lossesC. Catastrophe unlikelyD. Definite lossesE. 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 B. 80 C. 120 D. 160 E. None of the Above

Problem #1 - Answer

Correct Answer: A

There are 31 exclusions: Page 14 – 1513. 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 B. $440 C. $480

D. $600 E. None of the above

Problem #2 - Answer  1st ER Visit 2nd ER Visit

ER treatment 200 200

Medicine (Not Covered) 0 0

Laboratory Tests 200 200

Total 400 400

 

Outpatient Deductible ($150)

-150 0

ER Deductible ($50) -50 -50

Total 200 350

 

Insurance pays 80% of first $10,000 in medical cost:

200 * 0.8 = 160 350 * 0.8 = 280

Answer: B. 160 + 280 = 440

Problem #2 - Answer

Know how to apply the deductibles:Outpatient: Outpatient: $150 per policy year ER deductible :$50 per visitIn-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

Room and Board $500 x 10 days 5,000$ Medical Supplies 3,000$

8,000$ Deductible (100)$

7,900$ 80% of first $10,000 7900 x 80 % 6,320$

Surgeon 5,000$ x 80% = 4,000$ Assistant Surgeon 1,200$ x 80% = 960$

4,960$

6320 + 4960 = 11,280$

In-Hospital Expense Benefit

Answer: B. $11,280

Problem #3 - Answer

Know the in-hospital expensesIn-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 $10,000100% of balance of room and board and other

hospital expenses incurred