Insurance & Investing Practice Test

What is an insurance premium?

• Your monthly payment to your insurer, regardless of whether you use any services

• A list of the procedures covered by your insurance carrier

• An added cost you pay in order to receive higher-quality services

• The amount you pay out-of-pocket for a specific procedure or service

When setting your premium, your car insurance company may consider each of the following EXCEPT...

• How many miles you drive per year

• Your age

• Your driving record

• Your height

Insurance companies make money by...

• Refusing to pay out claims to policyholders

• Collecting money from the government

• Collecting more in premiums than they need to pay out each year

• Keeping costs low with minimal advertising

Why would someone choose to get long term disability insurance even if they already have health insurance?

• Long term disability only covers medical bills, while health insurance will help compensate for lost work with 40-60% of their income

• Long term disability insurance plans can also extend coverage to family members and pets

• Health insurance only covers regular check ups, while long term disability insurance also covers emergencies

• Health insurance only covers medical bills, while long term disability will help compensate for lost work with a percentage of their income

Medicaid generally provides insurance for which of the following groups of people?

• The elderly or disabled

• Individuals in low-income households

• Anyone who wants to buy coverage from the Marketplace

• Employees who have a government position

Your employer offers an employer-sponsored health insurance plan. Which of the following statements is TRUE?

• You can only see doctors who are also employees of the same company

• Your health insurance premiums will be paid directly from your paycheck, pre-tax

• Your employer cannot fire you if you get sick or injured because you have employer-sponsored health care

• You can remain on that health insurance plan even if you switch jobs

What type of auto insurance are you required to carry in almost every state (49 out of 50)?

• Insurance if you damage your own property

• Insurance if you cause injury to another person

• Insurance in case you get into an accident with someone who does not have insurance

• Insurance if you cause injury to yourself

Bruce has just graduated from college and decides that instead of paying for insurance, he'll work on building up his emergency fund. This way, if something goes wrong, he can just pay for it using cash. Why is this a risky idea?

• It is mandatory to have auto, health, life, disability, and renters/home insurance, so he'll have to pay 5 penalties per year for not enrolling in these insurance types

• An accident or illness can strike at any time and be quite expensive, so it's possible he'd need a big sum of money well before his emergency fund was large enough

• Having insurance not only protects you financially, but also physically, so he'll be less likely to experience illness or accident if he has insurance

• The sooner he starts paying for insurance, the sooner he will reach his maximum lifetime requirement and can stop paying altogether for coverage

Insurance companies operate by charging individuals different prices for coverage depending on their risk levels. Then, they collect everyone's monthly premiums together and use the money to make payments when people file a claim (for example, someone is in an auto accident or needs to see a doctor). This concept is known as...

• Comprehensive coverage

• Risk pooling

• Underwriting

• Risk management

In general, how do insurance companies decide how much to charge an individual for their monthly premiums?

• The company assesses the individual's risk factors and assigns higher premiums to higher risk individuals

• The company looks at the individual's tax filings from the previous year to assess overall wealth and ability to pay

• The company charges the same premium for every individual eligible for coverage

• The company increases or decreases premium rates based on the stock market