exam ii review session

State Farm Car Policy ReviewU of I Student Health Policy Review

Assignment 7Assignment 8Assignment 9

Assignment 10

Brian’s Special RulesFirst decide what type of car it is and if it is

coveredInsurance follows the car, driver pays excessSpouse’s car is never coveredRental cars are covered up to 21 daysReplacement cars covered for up to 30 daysAdditional Cars covered up to 30 days or

until effective date of policyKnow the flow chart for non-owned cars

Problem #1On September 30th, 2007, you trade in your 2001 Sebring(with an Actual Cash Value of $12,000) for a new 2007Range Rover that costs $85,000. On October 26th, 2007,you let your spouse borrow your car. Your spouse hashis/her own policy with Allstate with the same coveragelimits as you have. On the highway, your spouse swervesoff the road to avoid hitting a deer and crashes into a

roadsign, totaling your brand new Range Rover. Your policywill pay:A. $0 B. $11,900 C. $84,900D. $85,000 E. None of the above

Problem #1 AnswerCorrect Answer: C - $84,900This is a Newly Acquired Car – Replacement

CarYour State Farm Auto Policy will cover a

replacement car within 30 days of its delivery.$85,000 Collision damage

100 deductible$84,900

Problem #2You are tanning on the beach one day when a car comes out of nowhere and runs over your leg. The driver of the car has a policy with Nationwide with liability limits of 50/100/25. You incur $10,000 in medical bills and you would be entitled to a bodily injury award of $120,000. Your policy will pay:

A. $0 B. $10,000 C. C. $70,000D. $130,000 E. None of the above

Problem #2 - AnswerC. $70,000You are COVERED because you are hit by a

land motor vehicle with four wheels designed for use mainly on public roads (regardless of whenever you are off or on public roadways).

You incur $120,000 of Bodily InjuryThe other car’s insurance will pay up to its

$50,000 BI / person limit$120,000- 50,000=$70,000 Underinsured Motor Vehicle

coverage

YOU are ON Public Roadways

YOU are OFF Public Roadways

Land motor vehicle designed for use mainly ON public roadways

COVERED COVERED

Land motor vehicle designed for use mainly OFF public roadways

COVERED NOT COVERED

Problem #3You and your Aunt Mary (who lives in

Colorado) are on vacation in California. You borrow her car one day to go to the grocery store. On the way to the grocery store, you crash into another car and it is your fault. The other driver is entitled to a bodily injury award of $80,000 and his car incurs $11,000 of damage. You incur $20,000 of medical bills and your Sebring is totaled (Actual Cash Value = $12,000). Your policy will pay:

A. $0 B. $91,000 C. $111,000D. $122,900 E. None of the Above

Problem #3 - AnswerD. $122,900Your Aunt Mary’s car is a non-owned car. She

is not defined as a “relative” because she does not reside primarily with you.

$80,000 BI Liability +11,000 PD Liability

+20,000 Medical Payments+11,900 Collision (12,000–100 Deductible)

Problem #4Your son just turned 16, and you let him borrow your Sebring. Backing out of the garage, he hits the garage door, runs over the mailbox, and hits your 5-yr old next door neighbor. The garage door costs $2,300 to fix, the mailbox costs $200 to replace, and your 5-yr old neighbor incurs $30,000 of medical bills and is entitled to a $60,000 bodily injury settled. Your policy will pay:

A. $0 B. $60,000 C. $90,000D. $92,500 E. None of the above

Problem #4 - AnswerB. $60,000Your son is an insured. $60,000 Bodily Injury is covered (includes the

$30,000 Medical Payments)Property damage to property you own are NOT

covered.

Problem #5While on a camping trip, you park your car in a nearby parking lot. When you return a few days later, you notice that your trunk lock’s has been picked and your clothes and luggage has been stolen. It costs $2000 to replace your clothes and luggage; the ACV was $1200. Your policy will pay:

A. $0 B. $200 C. $1200D. $2000 E. None of the above

Problem #5 - AnswerA. $0The clothes and luggage are not covered.

Clothes and luggage are only covered for theft if your entire car has been stolen.

Brian’s Health Strategy1) Check to see if excluded p. 14 – 152) Inpatient or Outpatient

1) Easy way to tell is if have room and board charges, then inpatient

3) Check limits of coverage and deductible for each charge

1) If inpatient, calculate separately the In-Hospital Expense Benefit

4) Add everything together and make sure not over limits

Health Question 1You badly injure your ankle while rollerblading. You are hospitalized for 6 days and have surgery. You are billed $500 per day for hospital room and board, $10,000 for the surgeon, $2,500 for the assistant surgeon and $4,000 for the anesthesia (which is administered by a licensed Physican who remained in constant attendance during your operation).A) 0 B) $12,050 C) $24,100D) $24,500 E) None of the above

Health Question 1 AnswerIn-Hospital Expense Benefit:6 x $500 (room and board)+$10,000 (x-rays)-$100 (deductible)$12,90080% x $10,000 + $2,900 = $10,900Inpatient:$10,000 x .8 (surgeon) + $2,500 x .8 (assistant surgeon) + $4,000 x .8 (anesthesia) = $13,200Total:$10,900 + $13,200 = $24,100

Health Question 2You visit a doctor two times for a bad case of the flu. The doctor prescribes some medicine and performs some tests to see if you have meningitis, but fortunately you don’t. You are billed $100 for each visit to the doctor, $200 for the laboratory tests and $100 for the medicine.A) 0 B) $170 C) $200D) $280 E) None of the above

Health Question 3 AnswerOutpatient - Medicine not covered$200 (each visit)+$200 (laboratory tests)-$150 (deductible)$250$250 x .8 = $200

**deductible applies once b/c same sickness p 4

Health Question 3You have an eye exam and get a new set of glasses. The exam costs $100 and the glasses cost $200.A) 0 B) $80 C) $120D) $240 E) None of the above

Health Question 3 AnswerExclusion: Eye examinations and eyeglasses p 14 #9

Total:0

Coordination of BenefitsIntroduction to Life Insurance

Use for questions 1 & 2You 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.

Health InsuranceWhat is the Initial Benefit Payment under the U

of I Undergraduate Student Insurance Plan?

A. $0B. $35,500C. $35,825D. $42,450E. None of the above

Health InsuranceWhat is the Total Payment the U of I

Undergraduate Student Insurance Plan will make on this loss?


Life InsuranceBased 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)?

A. 24B. 37C. 39D. 50E. None of the above

Life InsuranceA 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?


Life InsuranceWhich 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?

A. Re-entry termB. Endowment lifeC. Whole lifeD. Yearly renewable termE. Variable life

Life Insurance

Table of Guaranteed Values

End of Policy Year August 1, Cash Value Paid-Up

Insurance

$100,000 Extended

Term Insurance to

10 2005 11,411 37,400 Oct 13, 2023

11 2006 12,933 40,600 Aug 15, 2025

John surrenders the policy on August 1, 2005, and selects the paid-up insurance option. If he dies in a fire on May 9, 2035, how much will his wife Jane receive from the insurance company?


Problem #1

John Doe pays his first ten annual premiums on time, but then decides he no longer wants to pay premiums. Thus, he stops paying at that point. If John dies on August 30, 2025, how much will his wife Jane receive from the insurance company?


Problem #2

Assume that the company paid a total of $5,000 in dividends in the first ten years. If John Doe surrenders the policy on August 1, 2005, for the cash value, how much of the proceeds will be taxable income for him?

A. -$3,919B. $0C. $1,081D. $11,411E. None of the above

Problem #3

Problem #4 If John had lied about his gender and said he was a

female when he bought the life insurance policy in 1995, which of the following would happen if he died on October 18, 2007, and the insurance company then found out he was actually a male?A. The insurance company would have to pay Jane

the full benefit because it only had two years to cancel the policy.

B. The insurance company will adjust the death benefit to reflect the actual gender of John.

C. The insurance company won’t pay any benefit to Jane because John lied about a material fact and therefore a valid contract never existed..

D. None of the above

Problem #4 If John had lied about his gender and said he was a

female when he bought the life insurance policy in 1995, which of the following would happen if he died on October 18, 2007, and the insurance company then found out he was actually a male?A. The insurance company would have to pay Jane

the full benefit because it only had two years to cancel the policy.

B.The insurance company will adjust the death benefit to reflect the actual gender of John.

C. The insurance company won’t pay any benefit to Jane because John lied about a material fact and therefore a valid contract never existed..

D. None of the above

Problem #5 John Doe terminates his life insurance policy on

August 1, 2006, and selects the paid up insurance option. John dies of illness on January 17, 2018. If his wife Jane has an adjusted age of 65 at this point, what is the minimum payment she will receive if she elects to receive a life income with 10 years certain?A. $199B. $202C. $205D. $221E. None of the above

Problem #5 John Doe terminates his life insurance policy on

August 1, 2006, and selects the paid up insurance option. John dies of illness on January 17, 2018. If his wife Jane has an adjusted age of 65 at this point, what is the minimum payment she will receive if she elects to receive a life income with 10 years certain?A. $199B. $202C. $205D. $221E. None of the above

($40,600 / $1,000) x 4.89 = $199

Life Insurance Cost ComparisonsLiability Exposures

Face Amount $200,000Annual Premium 4,200Dividends

in year 20 2,500first 20 years in total 25,000

Cash Valuesend of 19th year 80,000end of 20th year 87,000

Accumulated Value of Dividends at the end of 20 years at 6.5% 40,000

Whole Life Policy for 30 year old male

Question 1What is the traditional net cost index per

$1,000 of coverage?

A. -10.75B. -8.50C. -7.00D. 8.50E. None of the above

Question 1 - AnswerANSWER: C

Premiums Paid (20 x 4200) 84,000-Dividends Received -25,000-Cash Value at end of period -87,000=Net Cost -28,000÷ (Years x Policy Face per $1,000) (20 x 200)

÷4,000= Traditional Net Cost Index -7.00

Question 2What is the 20 year interest adjusted surrender

cost index per $1,000 of coverage based on a 6.5 percent interest rate?

A. 1.71B. 5.64C. 7.46D. 11.67E. None of the above

Question 2 - AnswerANSWER: BAnnuity due factor = (1+i)(n+1) - (1+i) = (1.065)(21) - (1.065) =

41.349 i 0.065

Premiums at Interest (4200 x 41.349) 173,666-Dividends at Interest -40,000-Cash Value at end of period -87,000=Interest Adjusted Cost Cost 46,666÷ (ADF x Policy Face per $1,000) (41.349 x 200) ÷8,270= Traditional Net Cost Index 5.64

Question 3What is the yearly rate for the 20th policy year

if the annual renewable term rate for this individual is $2.00 per $1,000?

A. 1.1%B. 6.6%C. 6.8%D. 10.6%E. None of the above

Question 3 - AnswerANSWER: BYearly Rate of Return for Policy Year t =CVt + Dt + (YPt)(Ft - CVt)(.001) - 1 Pt + CVt-1

CV = cash valueD= dividendsYP = yearly price per $1000 of renewal termF = death benefitP = premium paid at beginning of year

Yearly Rate of Return for Policy Year 20 =87,000 + 2,500 + (2.00)(200,000 – 87,000)(.001) - 1 =

6.6% 4,200 + 80,000

Question 4Which types of damages are covered under the Coverage A – Liability section of the State Farm Car policy covered in class?

I. Special Damages

II. General DamagesIII. Punitive Damages

A. I only B. I and II C. I and IIID. I, II and III E. None of the above

Question 4 - AnswerANSWER: D

The liability coverage in your State Farm Auto Policy will pay special, general, and punitive damages. The policy states:

“We will pay damages which an insured becomes legally liable to pay because of

a. bodily injury to others, andb. damage to or destruction of property

including loss of its use”(page 6)

Question 5Under which of the following provisions could you

be held liable for the negligent acts of another person?

A. Contributory negligenceB. Last Clear ChanceC. Strict LiabilityD. Sovereign immunityE. Vicarious liability

Question 5CORRECT ANSWER: E

Vicarious liability is, by definition, one person being held liable for the acts of another

By: Bill

Problem #1Your son and his friends are playing basketball in

your backyard. One of your son’s friends fragrantly fouls another friend, resulting in a broken arm. The hurt friend incurs $3,000 in medical bills. Your son’s friend sues you as owner of the house, but you are not found liable.

A. $0B. $750C. $1,000D. $3,000E. None of the above

Problem #1 - AnswerCorrect Answer: C. $1,000Explanation:

Your son’s friend incurred $3,000 in medical bills. Therefore, he will receive $1,000 because this is the maximum amount your medical payments coverage will pay per person per incident.

Problem #2Tired of outrageous winter heating bills you turn

off your heating system and board a plane for Hawaii. Upon your return home a month later you find the basement flooded due to pipes that had frozen. It costs $5,000 to fix the plumbing, $7,000 for new basement carpet, and $5,500 to replace the basement furniture (ACV $3,500).


Problem #2 - AnswerCorrect Answer: A. $0Explanation:

Your plumbing, basement carpet, and basement furniture are not covered. You turned off the heat in your house, which contributed to the freezing of your pipes and the flooding of your basement. Thus, Page 674 #14 applies.

Problem #3One day you find you home broken into but all

that is missing is the laptop you use for work. It cost $4,000 to replace the computer (ACV $3,000) and $2,000 to reconstruct the client database you had stored on the computer.


Problem #3 - AnswerCorrect Answer: B. $2,500Explanation: Your laptop is covered by personal

property, but the cost to reconstruct the client database is not covered. Please see Page 668 #8 and Page 669 #8. This is what the calculation look like. Personal Property$3,000 → ACV laptop- 250 → Deductible $2,750 ↓ $2,500 → Policy limit

Problem #4Your son’s hamster escapes from its cage and

starts gnawing at some electrical wiring underneath your computer. The wires short and start a fire, which completely destroys you home and everything inside. It cost $90,000 to rebuild your home. The ACV of your home was $80,000. It cost $75,000 to replace your personal property (ACV $55,000). While rebuilding, you rent an apartment for 8 months at $1,000 a month. It costs $20 for a new hamster.

A. $138,000B. $138,020C. $148,000D. $152,750E. None of the above

Problem #4 - AnswerCorrect Answer: C. $148,000Explanation:

Your home, personal property, and rent are covered, but your hamster is not covered. Please see Page 669 # 2. This is what the calculation looks like.

Personal Property Dwelling Loss of Use$55,000 → ACV property $90,000 → home $8,000 → rent- 250→ deductible Total$54,750 $50,000 → Personal property ↓ +90,000 → Dwelling$50,000 → policy limit + 8,000 → Loss of Use

$148,000 → Total

exam ii review session

Documents

excessspouses car

type of car

aunt marys car

state farm car policy

public roadwaysyou

public roads

medical bills

garage door costs