finance test 2

Product warranties – various types

express: written or spoken guarantees

implied: unwritten, legally assumed promises

limited: cover specific parts

extended: purchased separately to provide additional coverage after the original warranty expires.

Phases in research-based buying process – including items reviewed or analyzed in each phase

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Advantages & disadvantages of car leasing

Advantages: Lower Monthly Payments, Drive a New Car More Often, Lower Repair Costs, No Worry About Resale Value, Possible Tax Benefits (for Business Use)

Disadvantages: No Ownership, Mileage Limits, Extra Fees, Long-Term Cost, Limited Customization

Pricing of auto purchases – invoice, sticker

invoice: Definition: The amount the dealer supposedly pays the manufacturer for the car.

Includes: Base price, options, and destination fees.

sticker: Definition: The price the manufacturer recommends the dealer charge.

Includes: Base price of the car, Factory-installed options, Destination charges (cost to ship to the dealer)

Techniques to negotiate auto purchase

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Fixed vs variable operating costs for vehicles

Fixed operating costs for vehicles are expenses that remain relatively constant, regardless of mileage, such as insurance, registration, and depreciation. Variable costs, on the other hand, fluctuate with usage and include expenses like fuel, maintenance, and tires. 

Mediation vs. arbitration

mediation is a collaborative, voluntary process where a neutral third party (mediator) helps the parties reach a mutually acceptable agreement, while arbitration is a more formal process where a neutral third party (arbitrator) acts like a private judge and issues a final, binding decision. 

Small Claims court vs class action suit

Small claims court is designed for resolving minor monetary disputes between two parties quickly and informally, without the need for attorneys. A class action suit, conversely, is a large-scale legal procedure where a group of people with the same grievance sue one or more defendants collectively

Renting vs buying a home

Renting a home offers more flexibility and lower upfront costs, while buying a home builds equity, offers stability, and potential tax benefits

Lease, sublet

A lease is the primary contract between a landlord and a tenant for renting a property, while a sublease is a secondary contract where the original tenant (now the sublessor) rents all or part of that property to a new tenant (the sublessee)

Advantages and disadvantages of home ownership

pros: Stability and peace of mind, Can usually generate equity (money) long-term, Can control monthly payments with a fixed mortgage, Can leverage ownership into increased borrowing power, Can make decisions about future home and yard development (additional rooms, a shed, a pool, etc.)

cons: Must pay annual property taxes and homeowners’ insurance (if you have a mortgage), Comes with regular maintenance costs (for painting, mowing, edging, tree-trimming, plumbing, roof repairs, etc.), Maintenance can be more expensive if the homeowner is not handy with DIY chores, Can be difficult and expensive to move if you don’t like your neighbors, Can’t control monthly dues for Homeowners Associations (HOAs)

Forms of housing – Condominium, Cooperative housing, single-family dwelling, etc

Items to consider when purchasing a home

• Price. For many prospective home buyers, a home's purchase price is their biggest concern

• Location

• House size

• Property taxes

• Homeowners association

• Amenities

• Future resale value

• Home condition and age

• Energy efficiency

• Local zoning laws

Contract to buy – earnest money, counteroffer, contingency

earnest money is a good-faith deposit from a buyer, a counter offer is a response from the seller to modify the original offer, and contingencies are conditions that must be met for the sale to proceed

Private mortgage insurance – PMI

required for conventional loans when the borrower makes a down payment of less than 20% of the home's value. It protects the lender, not the borrower, against financial loss in the event of default or foreclosure.

Financing – types of mortgage loans, points, escrow

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Peril, Hazard

Peril: the cause of a loss or an event that can lead to a loss. It is the actual event that happens.

Hazard: condition or factor that increases the likelihood or severity of a loss from a given peril. Hazards do not cause losses themselves, but they make the peril more likely to occur or the resulting damage worse

Negligence

form of control or abuse where one person manipulates or withholds financial resources to create dependency, often by limiting access to money, jobs, or assets. It can include a range of abusive behaviors, from preventing someone from working to controlling their spending and making them ask for an "allowance". 

Ways to manage risk – i.e. shift, avoidance, reduction, etc.

avoidance, which involves eliminating the risk, and reduction, which means taking steps to lower the likelihood or impact of the risk. Other common strategies include transferring the risk to a third party, such as through insurance, and accepting the risk when the potential reward outweighs the cost of mitigation. 

Automobile coverage – uninsured motorist, collision vs. comprehensive coverage, property damage, bodily injury

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Reducing your auto insurance premium

owering the amount you pay for your car insurance coverage. This can be achieved by taking advantage of discounts, increasing your deductible, and adjusting your policy and driving habits to show you are a lower risk to the insurer. 

Coordination of benefits in health insurance

a process that determines how multiple health insurance plans work together to cover medical expenses. It ensures that no one pays for the same medical services twice. 

Purpose of COB: Prevent duplicate payments, Establish which plan is primary and which is secondary, and Maximize coverage for the insured individual. 

Deductible, co-pay, out-of-pocket limit

A deductible is the amount you pay for covered services before your insurance plan starts to pay. A copay is a fixed, flat fee you pay for a specific service, like a doctor's visit, at the time of service. An out-of-pocket maximum is the most you will have to pay for covered healthcare services in a plan year; once you reach this limit, your insurance plan typically pays 100% of covered costs for the rest of the year.

FSA vs HSA

An HSA is a personal, portable, and permanent savings account for those with a high-deductible health plan (HDHP), while an FSA is an employer-owned account with a "use it or lose it" policy for funds within a plan year, though some rollover might be allowed. HSAs offer the potential to invest funds and have higher contribution limits, whereas FSAs generally have lower limits and less flexibility, but anyone with an employer's group plan can contribute. You cannot contribute to both an HSA and a full-purpose FSA at the same time.

Medicare vs Medicaid – who is covered, costs

Medicare covers individuals based on age and disability, primarily serving those 65 or older or with certain disabilities, while Medicaid is for low-income individuals and families, with eligibility determined by state. Costs differ significantly: Medicare beneficiaries typically pay premiums, deductibles, and copayments, whereas Medicaid offers low or no cost to eligible individuals for covered services.

Disability benefits – elimination period, benefit period

The elimination period is the waiting period after a disability begins before benefits are paid, while the benefit period is the maximum length of time you can receive benefits. The elimination period starts on the first day of disability and typically ranges from 7 to 90 days for short-term plans and around 90 to 180 days for long-term plans. The benefit period for short-term disability is often 13 to 26 weeks, and long-term disability plans can last for many years

Life Insurance – uses of insurance, types of policies – term, whole life, variable, universal

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Misstatement of age provision

allows the insurer to adjust the death benefit to the amount that the paid premiums would have purchased at the insured's correct age. If the insured's age was understated, they paid too little premium, so the death benefit will be reduced to the correct value. Conversely, if the age was overstated, the policyholder is owed a refund of any excess premiums paid. This provision ensures fairness by correcting discrepancies, rather than canceling the policy. 

Waiver of premium disability benefit, accidental death benefit, guaranteed insurability

A waiver of premium benefit waives your insurance premiums if you become totally disabled, while an accidental death benefit provides a payout to beneficiaries if you die in an accident. A guaranteed insurability rider allows you to increase your coverage in the future without a medical exam, often on specific dates or after life events like marriage or having a child. These are all riders that can be added to a primary insurance policy for an extra cost

Annuity – deferred vs immediate, settlement options

Immediate annuities allow you to convert a lump sum of cash into an income stream. They differ from deferred annuities in that they do not have an accumulation period. They are funded with a single lump-sum payment rather than with a series of premium payments.