ECO110_Milestone_4

Page 1

Yarareceivesacallstatingthattherehasbeensomeunusualactivityinhercreditreport andthattheywouldliketohelpYaraverifytheaccount. What should Yara do next in the given situation?

• Yarashouldprovidethecallerwithhercreditcarddetailsandrequestthecaller toemailheracopyoftheirfindings.

• Yara should refrain from providing her account details and freeze her credit.

• YarashoulddiscloseonlyherSocialSecuritynumbertothecallerandaskthem toverifytheaccountdetails.

• Yarashouldstopusinghercreditanddebitcardsuntilsheobtainsmore information.

RATIONALE

Ifthereseemstobeunusualactivityinyourcreditreport,youshouldfirstperformacredit freeze.Freezingyourcreditsealsyourcreditreportssothatnonewaccountscanbe openedunlessyouunfreezetheaccountusingapersonalidentificationnumber(PIN).Also, youshouldrefrainfromprovidingpersonaldetailsoveracall.

CONCEPT

IdentityTheft

2

In which of the following scenarios is the individual paying an insurance deductible?

• Sampays20%ofhisinsurancecostsandhisemployerpaystheremaining80%.

• Raul pays $3,500 to repair damages to his house before his insurance begins to cover the costs.

• Alinapays$200towardherfireinsuranceeverymonth.

• Simonpaysastandardrateof$25everytimehehasadoctor'sappointment, whilehisinsurancepaystheremainingamount.

RATIONALE

Adeductibleistheamountthatyoumustpayonaclaimbeforeinsurancecomesintoplay.

CONCEPT

WhatIsInsurance?

3

Rachel,28,asoftwareengineer,decidestooptforatraditionalIRAinsteadofaRothIRA forherretirementplan.Herplanincludes75%stockwhichishigh risk,high reward.

Is this a productive choice of plans for Rachel? Why or why not?

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ECO110 Milestone 4 1
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• ItisproductivebecauseRachelcanwithdrawmoneyfromtheaccountatany timewithoutpenalty.

• ItisproductivebecauseRachel'swithdrawalsfromtheaccountafterretirement willbetaxexempt.

• ItisnotproductivebecauseRachelcannotclaimtaxdeductionsonher contributionstowardherretirementaccount.

• It is not productive because as Rachel's earnings grow over time, she'll likely reach a higher marginal tax rate during retirement.

RATIONALE

Rachelisyoungandwillmostlikelyhaveahighermarginaltaxrateatthetimeofher retirementasherinvestmentsgrow.Therefore,investinginatraditionalIRAwouldmean thatRachelwouldpaymuchmoreintaxesthanshewouldifshehadchosenaRothIRAas herretirementplan.

CONCEPT

4

Which of the following actions could result in an individual becoming a victim of a financial fraud?

• Trusting a stranger and transferring money to them over the internet

• Sendingmoneytoarelativewholivesoverseasusingonlineservices

• Refrainingfrompayinganyprocessingfeesrequiredtogainpossessionofa prize

• Lookingintothedetailsofaninvestmentschemebeforeinvestingmoney

RATIONALE

Therearethousandsoffinancialfrauds,rip offs,andscamsoperatinginthemarketplace today.Tostaysafeandkeepmoneyworkingforyou,youshouldneversendmoney overseastosomeoneyoudonotknow.Youshouldneverbuysomethingfromanunfamiliar personorbusinessoverthephoneorinternet.Youshouldalsoneverpayaprocessingfee toreceiveaprizeorinvestinsomethingthatyoudonotunderstand.

CONCEPT

FinancialFraud

5

Theadsforaninsurancecompanyshowhowapersoncouldpotentiallypayahigherprice formedicaltreatmentsfromtheirownpocketthantheywouldpayiftheyhadinsurance. Which of the following are the insurance companies using to build their customer base?

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IndividualRetirementAccounts
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• Loss aversion

• Optimismbias

• Hyperbolicdiscounting

RATIONALE

Lossaversereferstoageneraldislikeoflosses.Insurancecompaniesusuallyusethetactic oflossaversiontobuildtheircustomerbase.Thethoughtofhavingtopaymorerather thanaloweramountencouragesindividualstooptforinsurance.

CONCEPT

YourFinancialWell Being

6

Rachelhaschosenapointofservice(POS)planthroughheremployerforherhealth insuranceneeds.

How does Rachel benefit from the POS plan?

• Shecangettreatmentatanyhospitalwithoutpriorpermissionandobtain insurancecoverage.

• Herhealthinsurancecoveragecontinuesindefinitelyshouldsheloseherjob.

• She will have lower out of pocket expenses if she uses the services within the network.

• Shewillhavethesameout of pocketexpensesifshereceivestreatmentin networkhospitalsorinnon networkhospitals.

RATIONALE

IfyouhaveaPOSplan,youwillhavelowerout of pocketexpensesifyouusetheservices ofnetworkproviders.Togooutsidethenetwork,youmustfirstreceiveareferralfroma networkprovidertoreceivecoverage.

CONCEPT

HealthInsurance

7

Aninvestmentschemepromisestoincreasetheamountinvestedby10timesoveraperiod offiveyears. What should an investor do before investing in such a scheme?

• The investor should look into the terms and conditions of the investment scheme.

• Theinvestorshouldcheckwithandonlytrusttheownerofthescheme.

• Theinvestorshouldsolelydependonthereviewsprovidedbytheprevious investorsofthescheme.

• Theinvestorshoulddecidebasedontheinvestment'sexposuretomarketrisk.

RATIONALE by 100000852952242 from CourseHero.com on 09-22-2022 15:43:46 GMT -05:00

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Aninvestorcannotaffordtobecomplacentabouthisorhermoneyorinvestments.Itis importanttotakestepstobeawareofpossiblefrauds,misrepresentations,andconsumer rip offs.Aninvestorshouldalwaysbeskepticalofunrealisticpromises,neverrelysolelyon reputationorword of mouthreferrals,andverifydetailsofinvestmentproposals.

CONCEPT

ProtectingYourInvestments

8

Which of the following statements is true of a testamentary trust?

• Itisestablishedwhilethegrantorisstillalive.

• It is established through a grantor's will.

• Itisrevocable.

• Thegrantorofthetrustisalsothetrustee.

RATIONALE

Atestamentarytrustisestablishedafterthedeathofthegrantorthroughaperson’swill. Alltestamentarytrustsareirrevocable.

CONCEPT

PropertyOwnershipandTrusts

9

Riausesherproblemsolvingskillsanddecidestopayfortherepairsaroundthehouseout ofherownpocketinsteadoffilingforaninsuranceclaim. Which of the following statements is most likely the reason behind Ria's decision to pay for repairs herself?

• Claiming insurance for repairs will increase her insurance premium, which Ria cannot afford to pay.

• ClaiminginsuranceforrepairswillincreasetheamountofdeductiblethatRia owestowardthepolicy.

• Bypayingfortherepairs,Ria'screditscorewillimprove,whichinturnwill decreaseherinsurancepremium.

• Bypayingfortherepairs,theamountofcoverageRiareceiveswillincrease underthepolicy.

RATIONALE

Strongproblemsolvingskillscanhelpyoudetermineifmakingaclaimisawisedecision. Youcancontactyourinsurancecarriertohelpyouunderstandifitmightbeabetter financialchoicetopayout of pocket.Yourinsurancecompanywilltrackhowmanyclaims youmakeagainstyourpolicy.Ifyouhaveahighnumberofclaims,yourpolicypremium willincrease.Thefilingofmoreclaimsalsobringsdownthecreditscoreofpolicyholders. -05:00

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Which of the following expenses is covered by a split limit personal automobile policy (PAP)?

• Thecosttorepairdamagetotheinsuredvehiclecausedbyanaturaldisaster

• The cost to repair damage to someone else's property caused by the policyholder

• Thecosttorepairanydamagescausedtotheinsuredvehicle

• Aportionofthemonthlypaymentsforleasedautomobiles

RATIONALE

Asplitlimitisatypeofpersonalautomobileliabilityinsuranceinwhichthesplitlimits describethelevelofcoverageinthepolicy.Itreferstothefunctionsofthepolicy:paying formedicalandphysicaldamagewhenpolicyholdersareatfaultinanaccident.

CONCEPT

AutoInsurance

11

Which of the following people is likely to have the highest required retirement savings rate, if each plans to retire at age 65?

• Vanessa,whoearns$33,000ayearandstartssavingforretirementatage28

• George, who earns $50,000 a year and starts saving for retirement at age 45

• Celina,whoearns$44,000ayearandstartssavingforretirementatage36

• Bernard,whoearns$15,000ayearandstartssavingforretirementatage20

RATIONALE

Savingsareaccumulatedoveryourworkinglifeandeventuallydistributedduringyour retirementyears.Thelaterapersonbeginssavingforretirement,thehighertherequired savingsrateinordertoreachtheirretirementgoals.

CONCEPT

PlanningforRetirement

12

In which of the following scenarios should the individual opt for a financial counselor rather than a financial planner to be most productive?

• Aishwaryawantstoensurethatshehasenoughsavedforretirement.

• Dre is in financial difficulties and needs to clear his credit card dues as early as possible.

• Karenisconsideringoptionstosaveforherchildren'seducation. 100000852952242 from CourseHero.com on 09-22-2022 15:43:46 GMT -05:00

Homeowner'sandRenter'sInsurance 10
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• Ashleywantstoexpandhercookingbusinesstoseveraldifferentstates.

RATIONALE

Financialcounselingismosteffectiveinhelpingpeoplerespondtoshort termcrisesand challenges.Ontheotherhand,financialplanningisaproactiveprocessthatseeksto addresslong-termissuesandchallengeslongbeforetheybecomeanimmediateissue.

CONCEPT

FinancialAdvisors

13

Jamesisa60 year oldretiredveteranwhorecentlysufferedabrokenhipandneedsskilled homecare.Insteadoffilingaclaimonhislong-termcareinsurance,hechosetousemoney fromhissavingsandextendtheeliminationperiodonhisinsurance. What is one outcome of James' decision?

• HewillqualifyforMedicaid.

• The cost of his insurance premium will decrease.

• Hisinsurancepayoutwillincrease.

• Hisbenefitperiodwilldecrease.

RATIONALE

Aneliminationperiodisthewaitingphasebetweenthetimetheinsuredindividual qualifiesforbenefitsandwhentheinsurancecarrierbeginsprovidingbenefits.Onewayto reducelong termcareinsurancepremiumsistoextendtheeliminationperiodforaslong aspossible.

CONCEPT

Long TermCareInsurance 14

How does a limited power of attorney (POA) differ from a durable power of attorney (POA)?

• AlimitedPOAcomesintoeffectafterthemakerbecomesincapacitated,whereas thedurablePOAterminatesoncethemakerbecomesincapacitated.

• AlimitedPOAauthorizesanagenttomakeemergencymedicaldecisions, whereasadurablePOAdoesnotauthorizetheagenttomakemedicaldecisions.

• A limited POA terminates when the maker becomes incapacitated, whereas the durable POA remains effective even if the maker becomes incapacitated.

• AlimitedPOAremainsvaliduntilthemaker'sdeath,whereasadurablePOAis validonlyforashortspecifiedtime.

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AdurablePOAprovidesspecificpowerstotheagentandremainsinforcethroughoutthe durationspelledoutinthedocument,regardlessofanydisabilityorincapacitationthatthe persondraftingitmightendure.AlimitedPOAendswhensomeeventhappens,suchas becomingincapacitatedorwhenmedicalassistanceisrequired.

Which of the following should be included in an individual's will?

• Thewillshouldcontaintheconditionsthatshouldbefulfilledbythe beneficiariestoobtainaccesstotheproperty.

• Thewillshouldprovidedetailsabouthowthepropertycanbeusedbythe beneficiary.

• Thewillshouldlisttheconditionsunderwhichthepropertycanbetakenback fromthebeneficiary.

• The will should appoint an executor who has the power and directions to dispose of the property.

RATIONALE

Awillshouldnameanexecutororpersonalrepresentativeandprovideguidelines regardingthatperson’spowers.Abequestisanirrevocableandvoluntarytransferof propertytoanotherperson,afterdeath,throughawill.Sinceabequestismadeafterthe giver'sdeath,thepropertyisnotcontrolledbythegiver.

Which of the following is true of long-term disability insurance?

• Thepersonmustbeover65yearsofagetobeeligible.

• Most policies extend up to age 65.

• Policiesreplacesalaryforthree,six,or12months.

• Itonlypaysbenefitsiftheinjurywasincurredonthejob.

RATIONALE

Long termdisabilityinsuranceusuallykicksinafteryoucannotworkforsixto12months. Mostpoliciesextendfromafewyearsupuntilage65(atage65,youcanthenenrollin Medicare).Higherpremiumsareassociatedwithincreasedincomesanddurationof coverage. 15:43:46 GMT -05:00

CONCEPT LivingWillsandPowerofAttorney 15
CONCEPT Wills 16
CONCEPT DisabilityInsurance 17 This study source was downloaded by 100000852952242 from CourseHero.com on 09-22-2022
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Colehaszerosavingsasmostofhisearningsareusedtopayforallhismonthlyexpenses. Hehaspermanentlifeinsuranceandpaysa$350premiumeverymonth. Which of the following is a feature of permanent life insurance that could also benefit Cole's financial situation?

• InCole'spolicy,thecostofthepremiums,althoughhighinthebeginning, decreasesastheyearsprogress.

• Theinterestgeneratedbytheinsurance'scashreserveispaidtoColeevery month.

• Cole'shealthisalsoinsuredunderthistypeofpolicy,anditreduceshis expensesonhismedicalbills.

• In this policy, a portion of the premium is stored as cash reserves that can be withdrawn or borrowed by Cole.

RATIONALE

Cash valueinsuranceisalsotermedpermanentinsurance.Acash valuepolicyoften appealstoindividualswhoneedtoforcethemselvestosavemoney.Itispossibletoborrow thecashvaluewithoutacreditcheck. CourseHero.com on 09-22-2022 15:43:46 GMT -05:00

CONCEPT LifeInsurance This study source was downloaded by 100000852952242 from
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