Insurance Unit Test Review

1. Piper is willing to pay a high premium for their disability insurance. What are the likely outcomes of paying that higher premium?

• 1. They receive a low deductible and a low monthly payment

• 1. They receive a low deductible and a low coverage limit

• 1. They receive a low deductible and a high coverage limit

• 1. They receive a low deductible and a high risk assessment

1. The purpose of insurance is to…

• 1. transfer risk

• 1. manage assets

• 1. build wealth

• 1. build relationships

2. Why is it important for insurance companies to have a large risk pool of people paying premiums?

• 1. If a large pool of people pay premiums, insurance company employees will get more bonuses included in their next paycheck

• 1. The more people that pay premiums, the more careful each insured client becomes with their lifestyle choices

• 1. The premium payments of all the insured clients will cover the costs for the emergencies of the few who need it

• 1. A large pool of people paying premiums allows insurance companies to have a larger social media following

1. Jerry has an insurance policy with a premium of $150 per month. In June, he causes an accident and receives a bill with a total cost of $6000. His deductible is $1500, and his coverage limit is $10,000.

2. How much money will Jerry have to pay for the accident’s bill?

• $6000
• $3000
• $10,000
• $1500

3. Karishma has a renters insurance policy with a coverage limit of $25,000. While she’s on vacation a fire breaks out, ruining $9,000 worth of possessions before the fire department puts it out. Her deductible is $500. How much will Karishma and the insurance company each pay?

• $500 and $16,500
• $1,000 and $8,000
• $250 and $8,750
• $500 and $8,500

1. Norris has a deductible of $1,000. He damages his car in an accident and it will cost $3,300 to repair.

1. How much does Norris have to pay?

• $500
• $1,000
• $3,300
• $2,300

1. Norris has a deductible of $1,000. He damages his car in an accident and it will cost $3,300 to repair.

2. How much does his insurance pay?

• $1,000
• $2,300
• $3,300
• $4,300

2. Alicia has a collision deductible of $500 and a Bodily Injury Liability coverage limit of $50,000. She hits another driver and injures them severely. The case goes to trial and there is a verdict to compensate the injured person for $40,000.

1. How much does Alicia have to pay?

• $0
• $10,000
• $50,000
• $500

Alicia has a collision deductible of $500 and a Bodily Injury Liability coverage limit of $50,000. She hits another driver and injures them severely. The case goes to trial and there is a verdict to compensate the injured person for $40,000.

How much does her insurance pay?

• $500,000
• $50,000
• $40,000
• $10,000

1. John has a home insurance policy with a coverage limit of $100,000. A storm causes damage to his home amounting to $75,000. His deductible is $1,000. How much will John and the insurance company each pay?

• $1,000 and $74,000

• $1,000 and $75,000

• $1,000 and $100,000

• $75,000 and $1,000