Consumer Economics Quiz 3

risk

uncertainty concerning a potential economic loss

risk avoidance

avoiding activity that could create risk

loss prevention

any activity that lessens the severity of loss once it occurs

risk assumption

the choice to accept and bear the risk of loss

insurance policy

a contract between the insurer and insured under which the insurer agrees to reimburse the insured for any losses suffered according to specified terms

underwriting

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums

life insurance

protects your dependents from financial loss in the event of your untimely death

multiple of earning method

a method of determining the amount of life insurance coverage needed by multiplying gross annual earnings by some selected number

need analysis method

a method of determining the amount of life insurance coverage needed by considering a person’s financial obligation and available financial resources in addition to life insurance

social security survivor’s benefits

benefits under social security intended to provide basic minimum support to families faced with the loss of a principal wage earner

term life insurance

insurance that provides only death benefits, for a specified period, and does not provide for the accumulation of cash value

straight term policy

a term insurance policy written for a given number of years with coverage remaining unchanged throughout the effective period

decreasing term policy

a term insurance policy that maintains a level premium throughout all periods of coverage while the amount of protection decreases

renewability

a term life policy provision allowing the insured to renew the policy at the end of its term without having to show evidence of insurability

convertability

a term life policy provision allowing the insured to convert the policy into a comparable whole life policy

whole life insurance

life insurance designed to offer ongoing insurance coverage ofer the course of an insured’s entire life

cash value

the accumulated refundable value of an insurance policy; results from the investment earnings on paid-in insurance premiums

nonforfeiture right

a life insurance feature giving the whole life policy holder, upon policy cancellation, the portion of those assets that were set aside to provide payment for the future death claim

universal life insurance

permanent cash value insurance that combines term insurance with a tax sheltered savings/investment account that pays interest

variable life insurance

life insurance in which the benefits are a function of the returns being generated on the investments selected by the policy holder

group life insurance

life insurance that provides a master policy for a group; each eligible group member receives a certificate of insurance

portability

option to convert a group life insurance policy to an individually issued life insurance policy

credit life insurance

life insurance sold in conjunction with installment loans

mortgage life insurance

a term policy designed to pay off the mortgage balance in the event of the borrower’s death

industrial life insurance

whole life insurance issued in policies with relatively small face amounts, often $1000 or less

beneficiary

person who receives the death benefits of a life insurance policy after the insured’s death

policy loan

an advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policy holder

multiple indemnity clause

a clause in a life insurance policy that typically doubles or triples the policy’s face amount if the insured dies by accident

disability clause

a clause in a life insurance contract containing a waiver of premium benefit alone of coupled with disability income

guaranteed purchase option

an option in a life insurance contract giving the policy holder th right to purchase additional coverage at stipulated intervals without providing evidence of insurability

participating policy

a life insurance policy that pays policy dividends reflecting the difference between premiums that are changed and the amount of premium necessary to fund the actual mortality experience of the company

life insurance policy illustration

a hypothetical representation of a life insurance policy’s performance that reflects the most important assumptions that the insurance company relies of when presenting the policy results to a prospective client

group health insurance

health insurance consisting of contracts written between a group (employer, union, etc.) and the health care provider

indemnity (fee for service) plan

a health insurance plan in which the health care provider is separate from the insurer, who pays the provider or reimburses you for a specified percentage of expenses after a deductible amount has been met

managed care plan

a health care plan in which subscribers/users contract with the provider/organization which uses a designated group of providers meeting specific selection standards to furnish healthcare services for a monthly fee

health maintenance organization (HMO)

an organization of hospitals, physicians and other health care providers that have joined to provide comprehensive health care services to its members who pay a monthly fee

group HMO

an HMO that provides health care services from a central facility; most prevalent in larger cities

individual practice association (IPA)

a form of HMO in which subscribers receive services from physicians practicing from their own offices and from community hospitals affiliated with the IPA

proffered provider organization (PPO)

a health provider that combines the characteristics of the IPA form at HMA with an indemnity plan to provide comprehensive health care services to its subscribers within a network of physicians and hospitals

exclusive provider organization (EPO)

a managed case plan that is similar to a PPO but reimburses member only when affiliated providers are used

point of service (POS) plan

a hybrid form of HMO that allows members to go outside the HMO network for care and reimburses them at a specified percentage of the cost

Blue Cross/Blue Shield plans

prepaid hospital and medical expense plans under which health care services are provided to plan participants by member hospitals and physicians

medicare

a health insurance plan administered by the federal government to help persons age 65 and over, and others receiving monthly Social Security disability benefits, to meet their health care costs.

supplementary medical insurance (SMI)

a voluntary program under medicare (commonly called Part B) that provides payments for services not covered under basic hospital insurance

medicare advantage plans

(Part C) these plans provide Medicare benefits to eligible people, but they differ in that they are administered by private providers rather than by the government. common supplemental benefits include vision, hearing, dental, general check-ups and health programs.

prescription drug coverage

a voluntary program under medicare (part D) insurance that covers both brand name and generic prescription drugs at participating pharmacies. Participants pay a monthly fee and a yearly deductible and must also pay part of the cost of prescriptions including a co-payment or co-insurance

medicaid-

a state run public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare

worker’s compensation insurance

health insurance required by state and federal governments and paid nearly in full by employers in most states; it compensates workers for job related illness or injury

Patient Protection and Affordable Care Act and the Reconciliation Act of 2010

Healthcare reform legislation that requires all Americans to have or buy health insurance, requires insurers to cover the children of those they insure up to the age of 26. prohibits insurers from denying coverage or setting unrealistically high premiums for preexisting medical conditions. Establishes health care insurance exchanges and requires small firms to provide health insurance coverage for it’s employees

health reimbursement account (HRA)

an account into which employers place contributions that employees can use to pay for catastrophic care

flexible spending account (FSA)

employee pre-tax contributions to an account that must be spent on qualified medical care expenses

premium pricing

policy holders in a community pay the same premium without regard to their personal health, age, gender, or other factors

major medical plan

an insurance plan designed to supplement the basic coverage of hospitalization, surgical and physician expenses; used to finance more catastrophic medical costs

comprehensive major medical insurance

a health insurance plan that combines into a single policy coverage for basic hospitalization, surgical and physician expenses along with major medical protection

deductible

the initial amount not covered by an insurance policy and thus the insured’s responsibility; it’s usually determined on a calendar year basis or on a per-illness or per-accident basis.

participation (co-insurance) clause

a provision in many health insurance policies stipulating that the insurer will play some portion-say 80 or 90%- of the amount of the covered loss in excess of the deductible

internal limits

a feature commonly found in health insurance policies that limits the amounts that will be paid for certain, specified expenses, even if the claim does not exceed overall policy limits

coordination of benefits provision

a provision often included in health insurance policies to prevent the insured from collecting more than 100% of covered charges; it requires that benefit payments be coordinated if the insured is eligible for benefits under more than one policy

pre-existing condition clause

a clause that used to be included in most individual health insurance policies permitting permanent or temporary exclusion of coverage for any physical or mental problems the insured had at the time the policy was purchased; under the ACA insurers now are prohibited from denying coverage for pre existing conditions, making this clause moot

Consolidated Ominous Budget Reconciliation Act (COBRA)

a federal law that allows an employee who leaves the insured group to continue coverage for up to 18 months by paying premiums to his or her former employer on time; the employee retains all benefits previously available, except for disability income coverage

long term care

the delivery of medical and personal care, other than hospital care, to persons with chronic medical conditions resulting from either illness or frailty

elimination (waiting) period

the period after an insured meets the policy’s eligibility requirements, during which they must pay expenses out of pocket. when the waiting period expires the insured begins to receive benefits

gauranteed renewability

a policy provision ensuring continued insurance coverage for the insured’s lifetime, so long as the premiums continue to be paid

optional renewability

a contractual clause allowing the insured to continue insurance only at the insurer’s option

disability income insurance

insurance that provides families with weekly or monthly payments to replace income when the insured is unable to work because of a covered illness, injury or disease.

property insurance

insurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils such as fire theft vandalism and windstorms

liability insurance

insurance that protects against the financial consequences that may arise from the insured’s responsibility for property loss or injuries to others

peril

a cause of loss

negligence

failing to act in a reasonable manner or to take necessary steps to protect others from harm

principles of indemnity

an insurance principle stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss

actual cash value

a value assigned to an insured property that is determined by subtracting the amount of physical depreciation from it’s replacement cost

right of subrogation

the right of an insurer, who has paid an insured’s claim, to request reimbursement from either the person who caused the loss or that person’s insurer

co-insurance

in property insurance, a provision requiring a policyholder to buy insurance of an amount equal to a specified percentage of the replacement value of their property

comprehensive policy

property and liability insurance policy covering all perils unless they are specifically excluded

named peril policy

property and liability insurance policy that individually names the perils covered

personal property floater (PPF)

an insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner’s policy

replacement cost

the amount necessary to repair, rebuild, or replace an asset at today

personal automobile policy (PAP)

a comprehensive automobile insurance policy designed to be easily understood by the “typical” insurance purchaser

bodily injury liability losses

a PAP provision that protects the insured against claims made for bodily injury

property damage liability losses

a PAP provision that protects the insured against claims made for damage to property

uninsured motorist coverage

automobile insurance designed to meet the needs of “innocent“ victims of accidents who are negligently injured by uninsured, underinsured or hit-and-run motorists

underinsured motorists coverage

optional automobile insurance coverage, available in some states, that protects the insured against damages caused by being in an accident with an uninsured motorist who is found liable

collision insurance

automobile insurance that pays for collision damage to an insured automobile regardless of who is at

comprehensive automobile insurance

coverage that protects against loss to an insured automobile caused by any peril (with a few exceptions) other than collision

no-fault automobile insurance

automobile insurance that reimburses the parties involved in an accident without regard to negligence.

automobile insurance plan

an arrangement providing automobile insurance to drivers who have been refused regular coverage under normal procedures.

financial responsibility laws

laws requiring motorists to buy a specified minimum amount of automobile liability insurance or to provide other proof of comparable financial responsibility.

personal liability umbrella policy

an insurance policy providing excess liability coverage for homeowner’s and automobile insurance as well as additional coverage not provided by either policy

captive agent

an insurance agent who represents only one insurance company and who is, in effect, an employee of that company.

independent agent

an insurance agent who may place coverage with any company with which he or she has an agency relationship, as long as the insured meets that company’s underwriting standards.

claims adjustor

an insurance specialist who works for the insurance company, as an independent adjustor or for an adjustment bureau, to investigate claims.

Investing

process of placing money in some medium (stocks or bonds) in expectation of receiving some future benefit

risk averse

the average investor’s attitude toward risk is that when presented with two offers of equal expected rate of return, they will choose the less risky option

investment plan

a statement that specifies how investment capital will be invested to achieve a specified goal

rate of return

the increase or decrease in the price of an investment as well as any income received over the investment period, both stated as a percentage of the initial investment.

ask price

the price at which one can purchase a security

bid price

the price at which one can sell a security

bull market

a market condition usually associated with investor optimism, economic recovery and expansion; characterized by generally rising securities prices

bear market

a condition of the market typically associated with investor pessimism and economic slowdown: characterized by generally falling securities prices

prospectus

a document made available to prospective security buyers that describes the firm and a new security issue