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1.
James is a 60-year-old retired veteran who recently suffered a broken hip and needs skilled home care. Instead of filing a claim on his long-term care insurance, he chose to use money from his savings and extend the elimination period on his insurance.
What is one outcome of James' decision?
His benefit period will decrease.
The cost of his insurance premium will decrease.
He will qualify for Medicaid.
His insurance payout will increase.
RATIONALE
An elimination period is the waiting phase between the time the insured individual qualifies for benefits and when the insurance carrier begins providing benefits. One way to reduce long-term care insurance premiums is to extend the elimination period for as long as possible.
CONCEPT
Long-Term Care Insurance
Which of the following statements is true of a do-not-resuscitate (DNR) declaration?
A DNR declaration provides the medical personnel the rights to donate an individual's organs after their death.
You skipped this question and it was marked incorrect.
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A DNR declaration stops medical personnel from administering measures to revive a patient if they stop breathing.
A DNR declaration provides a specific family member the right to make life-ending decisions for the patient.
A DNR declaration directs the medical personnel to administer CPR if a patient is on a life support system.
RATIONALE
A DNR declaration instructs doctors, hospitals, nursing care facilities, and other health professionals to withhold CPR and other measures that can facilitate breathing if a situation arises when these procedures are recommended. It is neither used to decide whether to shift a patient to or from a life support system nor does it declare the financial condition of the patient.
CONCEPT
Living Wills and Power of Attorney 3
In which of the following scenarios is the individual paying an insurance deductible?
Sam pays 20% of his insurance costs and his employer pays the remaining 80%.
Alina pays $200 toward her fire insurance every month.
Simon pays a standard rate of $25 every time he has a doctor's appointment, while his insurance pays the remaining amount.
Raul pays $3,500 to repair damages to his house before his insurance begins to cover the costs.
RATIONALE
A deductible is the amount that you must pay on a claim before insurance comes into play.
CONCEPT
What Is Insurance?
Cole has zero savings as most of his earnings are used to pay for all his monthly expenses. He has permanent life insurance and pays a $350 premium every month.
Which of the following is a feature of permanent life insurance that could also benefit Cole's financial situation?
The interest generated by the insurance's cash reserve is paid to Cole every month.
Cole's health is also insured under this type of policy, and it reduces his expenses on his medical bills.
In this policy, a portion of the premium is stored as cash reserves that can be withdrawn or borrowed by Cole.
In Cole's policy, the cost of the premiums, although high in the beginning, decreases as the years progress.
RATIONALE
Cash-value insurance is also termed permanent insurance. A cash-value policy often appeals to individuals who need to force themselves to save money. It is possible to borrow the cash value without a credit check.
CONCEPT
Life Insurance 5
Which of the following results from filing frequent claims against an automobile insurance policy?
The policyholder's credit score increases.
The policyholder sees a decrease in their deductible amount.
The policyholder's driving record shows marked improvement.
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The policyholder begins to pay a higher premium.
RATIONALE
Auto insurance policyholders should be cautious when making any claims against their policy. Those with more frequent claims tend to pay higher premiums. A good credit score and a good driving record result in a decreased premium on auto insurance.
CONCEPT
Auto Insurance
Hallie, a 35-year-old influencer, uses her problem solving skill to choose a Roth IRA to save for retirement instead of a traditional IRA. Is this a productive choice of plans for Hallie? Why or why not?
It is productive because her initial contribution to the account is tax deductible.
It is not productive because she will pay a penalty if she withdraws any contributions to the account before age 59 1/2.
It is productive because she can withdraw her contributions to the account at any time without paying tax on the amount.
It is not productive because the earnings in the account are not tax-deferred.
RATIONALE
Contributions made to a Roth IRA (i.e., principal) may be withdrawn at any time and at any age without penalty (the same is not true of the interest that accrues). This makes it a productive decision for young Hallie. The earnings (interest) in a Roth IRA are taxdeferred, but the initial contribution to the Roth IRA does get taxed. In other words, the account is not tax deductible on the front end.
CONCEPT Retirement Accounts
Which of the following is a feature of renter's insurance coverage?
It provides coverage to restore the residence of the policyholder if any peril occurs.
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Individual
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It provides coverage of any liability that arises if the policyholder's rental property is damaged.
It is an expensive policy because it charges renters a high insurance premium.
It reimburses the policyholder for loss of personal income associated with filing an insurance claim.
RATIONALE
The renter's insurance coverage is similar to an HO policy except that it is designed to provide you with property replacement and liability coverage rather than insurance to replace your residence. Renter’s insurance is inexpensive and unrelated to your earnings or income.
CONCEPT
8
Which of the following is true of an irrevocable living trust?
The grantor can withdraw all the assets out of the trust while they are still alive.
The trust cannot be changed once it is established.
It is possible for the grantor to change beneficiaries after the trust has been established.
The trust allows beneficiaries to make decisions regarding the use of the assets held in the trust.
RATIONALE
An irrevocable living trust means that, once established, the trust cannot be changed. In this type of trust, even the grantor or the trustee will not have any decision-making power regarding the trust once the trust has been set up.
CONCEPT
Property Ownership and Trusts
Homeowner's and Renter's Insurance
9
In which of the following scenarios should the individual opt for a financial planner rather than a financial counselor to be most productive?
Colin wants to adjust his expenses to avoid another late mortgage payment.
Mia wants to clear her accumulating credit card debt.
Harper wants to find his way out of bankruptcy and minimize damage to his credit report.
Lucas wants to open multiple car dealerships across the state.
RATIONALE
Financial planning is a proactive process that seeks to address long-term issues and challenges long before they become an immediate issue, whereas financial counseling is most effective in helping people respond to short-term crises and challenges.
Financial counselors also coach those with fewer assets and lower incomes.
Financial Advisors 10
Which of the following should John do to protect himself from identity theft?
He should refrain from getting a copy of his credit report on a regular basis.
He should avoid using his personal laptop or phone to check his bank statements.
He should never give his credit card number over the telephone unless he made the call.
He should always throw away his credit card receipts and bank statements.
RATIONALE
CONCEPT
To avoid falling for phishing schemes that can lead to identity theft, never give your credit card number over the telephone unless you made the call.
CONCEPT
Identity Theft
11
The ads for an insurance company show how a person could potentially pay a higher price for medical treatments from their own pocket than they would pay if they had insurance. Which of the following are the insurance companies using to build their customer base?
Hyperbolic discounting
Optimism bias
Loss aversion
Status quo bias
RATIONALE
Loss averse refers to a general dislike of losses. Insurance companies usually use the tactic of loss aversion to build their customer base. The thought of having to pay more rather than a lower amount encourages individuals to opt for insurance.
CONCEPT
Your Financial Well-Being
12
Tim used his problem solving skill to compare health insurance plans. He decided to pick a fee-for-service plan to meet his needs. Which of the following is true regarding Tim's choice?
He must first receive a referral from a network provider to receive coverage if he opts for treatment outside the network.
He can only use doctors, specialists, clinics, and hospitals in the plan’s network, unless it is an emergency.
He can get medical treatment at any hospital without prior permission.
His out-of-pocket expenses will be the same in network hospitals and non-network hospitals.
RATIONALE
A fee-for-service plan is the most flexible, and costly, type of health insurance coverage available; it allows the insured to use the services of different hospitals, clinics, and doctors without prior permission.
CONCEPT
Health Insurance
13
In which of the following events should an individual use his or her agility skill and execute a new will?
On purchasing a new luxury vehicle
On taking their first international vacation trip
On starting their first year of college education
On becoming a parent of a child
RATIONALE
Completely new wills are often written upon marriage, upon the birth of children, or after any other major life event. However, starting a college education, purchasing a new vehicle, or going on vacation does not require a new will to be executed. As soon as a new will is drafted and executed, any old wills become obsolete and non-enforceable.
CONCEPT
Wills 14
Which of the following is true of long-term disability insurance?
The person must be over 65 years of age to be eligible.
Most policies extend up to age 65.
Policies replace salary for three, six, or 12 months.
It only pays benefits if the injury was incurred on the job.
RATIONALE
Long-term disability insurance usually kicks in after you cannot work for six to 12 months. Most policies extend from a few years up until age 65 (at age 65, you can then enroll in Medicare). Higher premiums are associated with increased incomes and duration of coverage.
Disability Insurance
Which of the following people is likely to have the highest required retirement savings rate, if each plans to retire at age 65?
Celina, who earns $44,000 a year and starts saving for retirement at age 36
Vanessa, who earns $33,000 a year and starts saving for retirement at age 28
Bernard, who earns $15,000 a year and starts saving for retirement at age 20
George, who earns $50,000 a year and starts saving for retirement at age 45
RATIONALE
Savings are accumulated over your working life and eventually distributed during your retirement years. The later a person begins saving for retirement, the higher the required savings rate in order to reach their retirement goals.
CONCEPT
Planning for Retirement
Suppose an investment scheme offers you a high return at a low risk. What does an offer like this indicate?
CONCEPT
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It indicates that investors have faith in the success of the investment scheme.
It indicates that the money in the scheme is managed by financial experts.
It indicates that the risk will increase if new investors invest in the scheme.
It indicates that the scheme might be deceptive or fraudulent.
RATIONALE
Fraud occurs whenever someone attempts to deceive you with a promise of goods, services, money, or other benefits that really do not exist, were never intended to be provided, or were misrepresented. A promise of low risk and high returns should warn you of a possible scam.
