ANSWERS TO CONCEPT CHECKS, FINANCIAL PLANNING PROBLEMS
AND QUESTIONS, AND CASE.
Concept Check 8-1 (p. 216)
1. What are the three types of risk? Give an example for each.
Personal risks: Loss of income or life due to illness, disability, old age, or unemployment
Property risks: Losses to property caused by perils, such as fire or theft, and hazards.
Liability risks: Losses caused by negligence that leads to injury or property damage.
1. What are the four methods of managing risks? Give example for each.
Risk avoidance: Avoiding traffic accident by not driving to work.
Risk reduction: Reduce the risk of an injury in an automobile accident by wearing a seat belt.
Risk assumption: Taking on responsibility for negative results of a risk.
Risk shifting: Transfer the risk to an insurance company.
3. List the four steps in planning for your insurance program.
Set insurance goals, develop a plan to reach your goals, put your plan into action, and check your
4. Give an example of each kind of risk—personal, property, and liability.
Loss of income or life, losses to property caused by perils, and losses caused by negligence.
Concept Check 8-2 (p. 221)
1. Define the following terms in the spaces below:
a. Homeowner’s Insurance: A coverage for a place of residence and its associated financial risks.
b. Household inventory: A list of personal belongings with purchase dates and cost information.
c. Personal property floater: Additional property insurance to cover the damage or loss of a specific
item of high value.
d. Renter’s insurance: Personal property protection, personal liability coverage for those who
rent homes or apartments.
2. Identify the choice that best completes the statement or answers the question:
a. The personal liability portion of a homeowner’s insurance policy protects the insured
against financial loss when his or her (i) house floods, (ii) jewelry is stolen, (iii) guests
injure themselves, (iv) reputation is damaged.
Copyright © 2004 The McGraw-Hill Companies, Inc. All rights reserved. 212 b. Renter’s insurance includes coverage for all of the following except (i) the building,
(ii) personal property, (iii) additional living expenses, (iv) personal liability.
c. The basic home insurance policy form protects against several perils, including (i)
sleet, (ii) lightning, (iii) flood, (iv) earthquake.
3. Define the following terms in the spaces below:
a.. Umbrella policy: Supplementary personal liability coverage.
b. Medical payments coverage: Home insurance that pays the cost of minor accidental injuries on
c. Endorsement: An addition of a coverage to a standard insurance policy.
4. List at least four personal property items that are not covered by a homeowner’s
Jewelry, furs, boats or expensive electronic equipment; animals, birds, or fish; sound devices used in
motor vehicles; property belonging to tenants; business property.
Concept Check 8-3 (pp. 223-224)
1. In the spaces provided, write “T” if you believe the statement is true, “F” if the statement is false.
a.. Today most insurance policies automatically increase coverage as construction costs rise. T
b. In the past, many homeowners’ policies insured the building for only 50 percent of the
replacement value. F
c. Most mortgage lenders do not require that you buy home insurance. F
d. Coverage for personal belongings is usually 55 to 75 percent of the insurance amount on your
2. What two methods insurance companies use in settling claims?
Actual cash value and replacement value
3. List the five factors that affect home insurance costs.
Location of home; type of structure; coverage amount and policy type; home insurance discounts; and
Concept Check 8-4 (pp. 226-227)
1. List the three main types of bodily injury coverage.
Bodily injury liability; medical payments coverage; and uninsured motorist’s protection.
2. In the space provided, write “T” if statement is true, “F” if it is false.
a.. Financial responsibility law requires drivers to prove that they can pay for damage or injury
caused by an automobile accident. T
b. Insurance that covers physical injuries caused by a vehicle accident for which you were
responsible is called uninsured motorist’s protection. F
c. Automobile liability coverage is usually expressed by three numbers 100/300/50. T
213yright © 2004 The McGraw-Hill Companies, Inc. All rights reserved. d. The first two numbers in 100/300/50 refer to the limit for payment for damage to property of
e. Uninsured motorist’s protection is insurance that covers you and your family members if you are
involved in an accident with an uninsured motorist or hit-and-run driver. T
f. Collision insurance covers damage to your vehicle when it is involved in an accident. T
3. What is no-fault insurance? What is its purpose?
An automobile insurance program in which drivers involved in accidents collect medical expenses,
lost wages, and related injury costs from their own insurance companies. The purpose is to reduce
the time and cost of settling vehicle injury cases.
4. List at least three other kinds of automobile insurance that are available to you.