Chapter 8 Home and Automobile Insurance

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The purpose of insurance is to help protect you and your family against financial hardship due to hazard, accident, death, and similar risks.
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true
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Personal risks, property risks, and liability risks are types of speculative risks.
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false
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Risk management is an organized strategy for protecting and conserving assets and people.
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true
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The most common method of dealing with risk is to shift, or transfer it to an insurance company or some other organization.
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true
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Self-insurance is the process of establishing a monetary fund that can be used to cover the cost of a loss.
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true
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Property losses can be categorized into destruction of property, and losses due to robbery, burglary, vandalism, or arson.
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true
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Liability is legal responsibility for the financial cost of another person’s losses or injuries.
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true
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Homeowner’s insurance does not cover additional living expenses and personal property.
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false
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Personal property refers to building and other structures covered by homeowner’s insurance.
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false
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Personal belongings that have a high value require coverage with a personal property floater.
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true
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The purpose of a household inventory is to provide evidence of items covered by home insurance.
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true
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Increased liability insurance is available with an umbrella policy.
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true
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Medical payments coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for injury or property damage of others.
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false
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The Comprehensive Form of homeowner’s insurance includes coverage for damage due to floods.
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false
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Replacement cost for settling property insurance claims is less costly than the actual cash value method.
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false
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A home made of wood is more expensive to insure than a comparable brick structure.
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true
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The deductible amount in your insurance policy does not affect the cost of your insurance.
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false
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Financial responsibility laws require that drivers have automobile liability insurance.
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false
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The 100/300 amounts for bodily injury liability insurance refer to the costs of insurance coverage.
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false
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Medical payments automobile insurance coverage pays for the costs of injuries to persons in the driver’s vehicle.
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true
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No-fault insurance systems have consistently reduced the time and costs involved in settling claims.
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false
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Collision coverage pays for damage to your vehicle for such hazards as fire, theft, or wind damage.
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false
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Property damage liability coverage would pay for damage to another vehicle for which you were at fault.
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true
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The driver classification category is based on automobile style, model, and value of the vehicle.
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false
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The purpose of an assigned risk pool is to assist people with poor driving records in obtaining automobile insurance coverage.
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true
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Peril is defined as A) the refusal by an insurance company to pay for the covered loss. B) the cause of risk. C) the cause of a possible loss. D) an uncertainty as to loss.
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C) the cause of a possible loss.
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Defective house wiring is an example of a A) hazard. B) peril. C) risk. D) speculation.
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A) hazard.
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The uncertainties of direct and indirect losses to personal or real property due to fire, wind, accident, theft, etc., are called ____________ risks. A) personal B) business C) property D) liability E) speculative
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C) property
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Possible losses due to negligence resulting in bodily harm or property damage to others are called ____________ risks. A) speculative B) liability C) property D) personal E) commercial
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B) liability
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Starting a small business that may or may not succeed is an example of ___________ risk. A) speculative B) pure C) commercial D) personal E) liability
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A) speculative
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Using a home security system is an example of ____________ risk. A) shifting B) accepting C) reducing D) sharing E) transferring
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C) reducing
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Wearing a seat belt in an automobile to protect yourself against injury is an example of ____________ risk. A) reducing B) assuming C) pooling D) shifting E) avoiding
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A) reducing
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Which of the following would be covered by a home insurance policy? A) hospital expenses for surgery B) damage to another person’s car when driving C) accidental injury to a coworker on the job D) wind damage to your roof E) theft of business supplies from your office
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D) wind damage to your roof
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The legal responsibility for the financial cost of another person’s losses or injuries is referred to as A) theft. B) robbery. C) liability. D) assigned risk. E) collusion.
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C) liability.
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If a homeowner leaves toys on stairs that results in injury to a delivery person, this may be ruled as A) vicarious liability. B) negligence. C) assigned risk. D) umbrella coverage. E) coinsurance.
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B) negligence.
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Negligence refers to A) failure to take ordinary and reasonable care. B) cancellation of insurance. C) property damage. D) high risk insurance coverage. E) common hazards in our society.
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A) failure to take ordinary and reasonable care.
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While cleaning your home, a worker damages some furniture. You take action against the worker’s employer to cover the cost of the damage. This is an example of a (n) ____________. A) hazard B) risk C) deductible D) peril E) liability
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E) liability
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High winds cause damage to trees, shrubs, and other plants. This insurance claim would be covered under the ____________ component of homeowner’s insurance. A) additional living expenses B) personal property C) building and other structures D) personal liability E) property damage
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C) building and other structures
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The additional living expenses component of a home insurance policy is designed to A) pay for temporary housing while your home is repaired. B) cover damage to property while away from home. C) reimburse a homeowner for damage done by a visitor. D) pay for medical expenses of people injured on your property. E) pay for repairs caused by fire or other hazards.
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A) pay for temporary housing while your home is repaired.
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Which of the following is considered personal property for home insurance coverage? A) an automobile B) a garage C) furniture D) a house E) trees and shrubs
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C) furniture
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Georgette Valentine has expensive photography equipment for use in her hobby. Which of the following coverage would pay for damage or theft of this equipment? A) an umbrella policy B) a household inventory C) additional living expense coverage D) a personal property floater E) a coinsurance floater
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D) a personal property floater
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The purpose of a household inventory is to A) reduce insurance costs. B) document owned property. C) obtain personal property floater coverage. D) increase liability coverage. E) lower the chance of negligence.
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B) document owned property.
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The ____________ coverage of a home insurance policy would cover accidental damage to another person’s property by a member of your family. A) supplementary B) personal property C) medical payments D) additional living expenses E) personal liability
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A) supplementary
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An umbrella policy is designed to cover A) expensive personal property. B) additional buildings on your property. C) property when traveling away from home. D) major personal liability suits. E) flood damage.
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D) major personal liability suits.
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Most home insurance policies provide coverage for A) earthquake damage. B) flood damage. C) an umbrella liability. D) personal property floaters. E) medical payments.
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E) medical payments.
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Renter’s insurance would include coverage for A) flood damage. B) personal property. C) building and other structures. D) umbrella liability. E) earthquake damage.
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B) personal property.
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Which of the following are not covered by renter’s insurance? A) medical expenses for injuries to visitors B) fire damage of the building’s roof C) additional living expenses D) accidental damage to the property of others E) cost of legal action due to personal liability
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B) fire damage of the building’s roof
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Which form of homeowner’s policy provides coverage for the most risks? A) special B) basic C) broad D) tenants E) modified coverage
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A) special
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Ainsley and Garret recently purchased a new home and desire coverage for all causes of loss or damage except those specially excluded by the policy. They should obtain the ____________ form of homeowner’s policy. A) basic B) broad C) special D) modified coverage E) condominium
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C) special
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The ____________ form of homeowner’s insurance is designed to cover the personal property of renters against the risks listed in the policy. A) basic B) broad C) condominium D) tenant’s E) special
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D) tenant’s
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Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay? A) $100 B) $150 C) $200 D) $350 E) $400
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E) $400
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Which of the following does not affect home insurance costs? A) location of home B) type of structure C) the number of people occupying a home D) coverage amount and policy type E) company differences
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C) the number of people occupying a home
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The ____________ method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation. A) replacement value B) actual cash value C) umbrella D) endorsement E) personal property floater
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B) actual cash value
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Home insurance costs are affected most directly by A) the profits of the insurance company. B) insurance agents’ commission. C) government regulations that set premiums. D) processing costs of claims. E) the number of claims in an area.
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E) the number of claims in an area.
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Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay? A) $250 B) $350 C) $450 D) $600 E) not able to determine from this information
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B) $350
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The purpose of financial responsibility laws is to A) reduce auto insurance costs. B) assist poor drivers in getting insurance coverage. C) protect the public from financial losses due to auto accidents. D) require uninsured motorists coverage. E) pay for high medical costs of auto accident victims.
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C) protect the public from financial losses due to auto accidents.
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____________ provides coverage for the risk of financial loss due to legal expenses, medical expenses, lost wages, and other expenses associated with injuries caused by an automobile accident for which you were responsible. A) Medical payments B) Bodily injury liability C) Uninsured motorists’ protection D) No-fault insurance E) Comprehensive insurance
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B) Bodily injury liability
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The 100 in 100/300/50 refers to A) property damage liability coverage. B) the amount of the deductible. C) collision coverage. D) the total coverage for an accident. E) the limit for bodily injury claims that can be paid to one person.
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E) the limit for bodily injury claims that can be paid to one person.
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Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry’s medical expenses would be covered by A) medical payments. B) collision. C) bodily injury liability. D) uninsured motorists’ protection. E) no-fault coverage.
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D) uninsured motorists’ protection.
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Which of the following coverage would pay for medical care for people who were injured in your automobile? A) medical payments B) bodily injury liability C) collision D) comprehensive E) no-fault insurance
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A) medical payments
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Which of the following is a system in which drivers involved in an accident collect medical expenses, lost wages, and related injury costs from their own insurance company? A) assigned risk pool B) financial responsibility coverage C) comprehensive system D) no-fault insurance E) uninsured motorists’ protection
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D) no-fault insurance
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____________ protects you against financial loss when your car damages the property of others. A) Collision B) Comprehensive physical damage C) Property damage liability D) No-fault insurance E) Assigned risk coverage
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C) Property damage liability
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The 25 in 50/100/25 refers to ____________ coverage. A) collision B) bodily injury liability C) comprehensive physical damage D) medical payments E) property damage liability
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E) property damage liability
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Which of the following coverage would pay for damage to your automobile in an accident for which you were at fault? A) property damage liability B) collision C) comprehensive physical damage D) no-fault insurance E) assigned risk pool coverage
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B) collision
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Comprehensive coverage would cover financial losses due to A) injuries caused by a driver without insurance. B) damage to your car in an accident for which you were at fault. C) damage to your car caused by wind or hail. D) legal action against you for an accident. E) damage to a neighbor’s tree with your car. Answer: C
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C) damage to your car caused by wind or hail.
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____________ coverage would pay for damage to your vehicle in an accident for which another driver with insurance was legally at fault. A) Property damage liability B) Collision C) Comprehensive physical damage D) Uninsured motorists’ protection E) Assigned risk
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A) Property damage liability
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Which coverage pays for mechanical assistance in the event that your vehicle breaks down? A) Rental reimbursement B) wage loss insurance C) emergency road service D) No-fault insurance E) Collision insurance
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C) emergency road service
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Your geographic location is a major factor in determining the ____________ used to calculate your automobile insurance premiums. A) driver classification B) assigned risk pool C) coverage level D) legal responsibilities E) rating territory
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E) rating territory
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Driver classification is not based on: A) age B) sex C) marital status D) driving record E) rating territory
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E) rating territory
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Which of the following refers to a category based on age, sex, marital status, and driving habits that is used to set automobile insurance premiums? A) rating territory B) assigned risk pool C) no-fault system D) driver classification
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D) driver classification
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Which of the following factors is used to determine a person’s driver classification? A) age B) type and age of vehicle C) claims in your geographic area D) insurance company claim processing costs E) state insurance premium regulations
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A) age
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The purpose of an assigned risk pool is to A) provide insurance for poor drivers who can’t get motor vehicle insurance. B) reduce medical costs associated with auto accidents. C) take unsafe drivers off the road. D) reduce auto insurance premiums with state regulation. E) offer premium discounts to safe drivers.
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A) provide insurance for poor drivers who can’t get motor vehicle insurance.
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A system that requires each insurance company operating in a state to provide coverage to several individuals with poor driving records is referred to as A) no-fault insurance. B) an assigned risk pool. C) premium discounts. D) comprehensive coverage.
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B) an assigned risk pool.
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What coverage is commonly included in a homeowner’s insurance policy?
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Most home insurance policies include coverage against fire, theft, and other hazards for your home and other structures, and personal property. In addition, policies cover additional living expenses, personal liability, medical payments, and supplemental coverage for minor property damage mishaps.
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What factors affect the cost of home insurance?
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The main influences on home insurance costs are type of home, construction materials, location of residence, amount of coverage, type of policy (basic, broad, special), deductibles, discounts for fire and burglary devices, and the company selected.
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What is financial responsibility law? What is its purpose?
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Financial responsibility law is a state legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident. Since very few people have the money they’d need to meet financial responsibility requirements on their own, the state law mandates that drivers abide by this law.
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A friend wants to understand what affects the cost of auto insurance. Explain the factors used to determine the automobile insurance premiums a person pays.
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The main factors that influence the amount paid for auto insurance are the year, make, and model of automobile; your geographic location; your driver classification, including age, sex, marital status, driving record and driving habits; the amount of coverage; and discounts for driver training, security devices, or other factors.

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