D363 Personal Finance - Set 2 - Part 2

Correct Answer: Subrogation insurance

Subrogation rights allow an insurance company to seek reimbursement from a negligent third party after the insurer has paid for losses.

Correct Answer: Predict group behavior more accurately as the group size increases

The law of large numbers allows insurance companies to predict loss trends more accurately by using data from large groups of insured individuals.

Correct Answer: It provides extra liability coverage beyond standard policies

Umbrella liability insurance provides additional liability coverage beyond the limits of a homeowners or auto policy, protecting against significant claims and lawsuits.

Correct Answer: The possibility of an investment generating either a gain or loss

Speculative risk refers to situations where there is potential for both gain and loss, such as investing in the stock market.

Correct Answer: Renter's contents broad form (HO-4)

Renters contents broad form (HO-4) provides coverage for the personal belongings of individuals who rent their homes, protecting against losses such as theft or fire.

Correct Answer: To manage assets during the grantors lifetime and avoid probate after death

A revocable living trust allows the grantor to manage assets during their lifetime and avoid probate after death, offering flexibility and control over the estate.

Correct Answer: To retain risks that are financially affordable and insure risks that are not

The large loss principle advises insuring risks that could cause significant financial harm and retaining smaller, affordable risks.

Correct Answer: The policyholder pays a percentage of the loss, with the insurer covering the rest

Coinsurance in property insurance requires the policyholder to share a percentage of the cost of the loss, with the insurer covering the remainder.

Correct Answer: It takes effect upon the death of the grantor and provides asset management for heirs

A testamentary trust is created in a will and becomes effective after the grantors death, ensuring that assets are managed and distributed according to their wishes.

Correct Answer: A legal mechanism to transfer funds to a designee upon the account owner's death

A POD designation allows funds in an account to be transferred directly to a designee upon the account owners death, avoiding probate.

Correct Answer: The possibility of investment losses due to overall market conditions

Market risk refers to the risk that an entire market or a segment of the market will decline, affecting the value of investments.

Correct Answer: Unemployment rate

The unemployment rate is a countercyclical indicator, meaning it increases when the economy is in decline and decreases when the economy improves.

Correct Answer: The willingness of consumers to spend money in the economy

The Consumer Confidence Index measures how optimistic or pessimistic consumers are about the economy, influencing their willingness to spend money.

Correct Answer: A loan due in 6 months

A short term liability is any obligation that must be paid within one year, such as a loan due in 6 months.

Correct Answer: To list and summarize income and expense transactions over a specific period

A cash flow statement tracks and summarizes income and expenses over a set period, showing where money comes from and how it is spent.

Correct Answer: The interest rate charged by banks to their most creditworthy customers

The prime rate is the interest rate that banks charge their most creditworthy customers, and it is often used as a benchmark for other loans.

Correct Answer: Reducing the overall use of credit in the economy

Deleveraging occurs when individuals, businesses, or the economy as a whole reduce their reliance on credit by paying down debt or avoiding new borrowing.

Correct Answer: Higher yield compared to regular bank issued CDs

Brokered CDs are purchased through brokerage firms and typically offer higher yields than bank issued CDs due to their bulk purchasing and resale to individual investors.

Correct Answer: Employer contributions that belong to the employee after meeting certain conditions

Vesting refers to the process where employees earn the right to keep employer contributions to their retirement accounts, usually after meeting specific service requirements.

Correct Answer: The percentage of monthly income used to make debt repayments

The debt to income method calculates the percentage of a person's monthly gross income that goes toward debt repayments, helping determine financial health.