Personal Finance Unit 2 Review

Which of the following is the best definition of a co-insurance payment?

• The amount you must pay every month to purchase health insurance.
• The added cost you pay to receive better quality services
• The percentage of covered medical expenses you are responsible for paying, after your deductible is met
• The maximum amount of coverage your insurer will pay each year

Answer explanation

A co-insurance payment is also called a co-pay. You'll keep paying a co-pay until you meet your out-of-pocket maximum for the year.

True or False: Once you meet your deductible your health insurance company pays 100% of covered costs for the rest of the year.

• True

• False

Answer explanation

Once you meet your deductible, you will pay co-insurance (also known as a copay) until you've met your out-of-pocket maximum for the year.

Insurance does not pay for ALL covered expenses until AFTER you've met your annual out-of-pocket maximum.

Insurance companies charge individuals different prices for coverage, depending on their risk levels, then combine everyone's monthly payments together and use the money to make payments when people file a claim. What is this practice called?

• Cost Sharing

• Risk Pooling

• Claim Jumping

• Cost Maximizing

Answer explanation

Insurance companies make a profit by spreading out their risk among many people. They charge you more if you pose a higher risk, and they bet on the fact that they will earn more money in premiums than they will have to pay out in claims.

What is the term for the monthly payment you make to your insurance company, even if you do not use any services?

• Deductible

• Premium

• Coverage Amount

• Copay

Answer explanation

Remember: Your premium does NOT count as an out-of-pocket expense that goes toward your annual maximum.

Your premium is simply your monthly fee for having insurance.

You'll pay this fee even if you NEVER once make a claim.

Which of these is the BEST step to take after realizing your financial information may have been exposed while out shopping?

• Dial 911 and report an emergency with the police department
• Cancel all your credit cards and close your bank accounts
• Call all the stores you visited to ask if they saw anyone or anything suspicious
• Put a freeze on your credit and file an identity theft report with the FTC

Answer explanation

Freezing your credit blocks and prevents anyone from opening new credit accounts in your name. You can still use all your credit cards and make normal purchases. It has no impact on your credit report or your good credit score.

You just can't open new credit until you un-freeze it... Which is quick, easy and free.

How do insurance companies make a profit?

• By over-charging their customers

• By hiring fewer employees to cut costs

• By collecting more in premiums each year than they must pay out in claims

• By denying a high percentage of insurance claims

Answer explanation

Insurance companies bank on the fact that most people will not make a claim in a given year.

They are likely to collect a lot more money through monthly premiums than they will need to pay out in claims.

Jose is comparing two quotes on a new auto insurance policy. They both offer the same coverage limit, but one policy has a lower monthly premium. What is likely true about the two options?

• The policy with the lower monthly premium has a higher deductible.

• The policy with the lower monthly premium has a lower deductible.

• The premium and the deductible are not related.

• There is not enough information given to answer the question, since the amount of the coverage limit was not provided.

Answer explanation

There is an INVERSE relationship between premiums and deductibles.

High deductible plans have lower premiums -- they are cheaper every month because you would have to pay more out-of-pocket if you have to make a claim.

Low deductible plans are more expensive. You will have to pay a higher monthly premium if you want to keep your deductible low.

What is the difference between Medicaid and Medicare?

• Medicare is health insurance for people with low incomes, Medicaid is for people who are over 65.
• Medicare is funded by taxes, but Medicaid is a private insurance option.
• Medicaid is health insurance for people with low incomes, Medicare is for people who are over 65.
• Medicaid is free health insurance for children.

Answer explanation

Remember:

If you've got grey hair, it's MEDICARE.

If you're not getting paid, it's MEDICAID.

True or False: Medicaid, Medicare and CHIP plans are low or no-cost health insurance options for people who qualify.

• True

• False

Answer explanation

Medicare, Medicaid and CHIP are public plans, meaning they are funded by the government. If you qualify for these plans, your insurance will be at a very low cost, or even no cost at all.

Which of the following is a benefit of having an employer-sponsored health insurance plan?

• Your employer cannot fire you if you get sick.
• Out-of-pocket maximums are set at zero.
• Health insurance premiums are paid with pre-tax dollars and automatically deducted from your paycheck
• Employer-provided plans have no deductible.

Answer explanation

Employer-sponsored health insurance plans are generally much cheaper than getting health insurance on your own.

The other big benefit is that your employer will pay that premium from your paycheck, tax free (this will save you money on income taxes at the end of the year).

The down-side is that, if you quit or lose your job, you'll no longer have insurance coverage.