01The primary financial rationale for insurance is:
- A. Positive expected value
- B. Protection against tail risk the household cannot absorb
- C. Better-than-market returns
- D. Tax advantages
Reveal answer
B. Insurance is negative expected value; households pay for the transformation of tail risk into a certain premium.
02The insurance product most households marketed to should decline is:
- A. Term life
- B. Long-term disability
- C. Whole life sold as an investment vehicle
- D. Umbrella liability
Reveal answer
C. Whole life bundles insurance with an expensive investment wrapper. Households that have not maxed tax-advantaged accounts should hold term instead.
03The out-of-pocket maximum on a health plan is:
- A. The annual premium
- B. The deductible plus co-insurance for one specialty visit
- C. The annual cap on what the household pays for covered services
- D. The lifetime maximum benefit
Reveal answer
C. The OOP max is the annual limit on what the household pays for in-network covered services; after it is reached, the plan pays 100%.
04Own-occupation disability coverage pays if:
- A. You cannot perform any occupation for which you are reasonably qualified
- B. You cannot perform your specific occupation
- C. You are unemployed for any reason
- D. You are diagnosed with a covered illness
Reveal answer
B. Own-occupation is the more valuable and more expensive definition; it triggers when you cannot do your specific job.
05A homeowner's policy typically excludes losses from:
- A. Fire
- B. Windstorm
- C. Flood and earthquake
- D. Theft
Reveal answer
C. Standard homeowner's policies exclude flood and earthquake; separate policies are required.
06An umbrella policy provides coverage:
- A. For medical expenses beyond the health plan
- B. For liability beyond the limits of the underlying auto and homeowner's policies
- C. For losses excluded from other policies
- D. For long-term-care needs
Reveal answer
B. Umbrella extends liability coverage above the auto and homeowner's limits.
07The correct death benefit on a term life policy for a household with dependents is:
- A. Whatever the employer's group policy provides
- B. 10–12 times income, adjusted for existing assets and debts to be cleared
- C. One year of income
- D. The face value of the mortgage only
Reveal answer
B. 10–12 times income is the starting rule; refine by summing debts, education costs, and the present value of income replacement.
08Replacement-cost coverage on household goods pays:
- A. The depreciated value at loss
- B. The cost to replace the item new, up to policy limits
- C. The original purchase price
- D. The insured amount minus the deductible
Reveal answer
B. Replacement cost pays the cost to replace the item at current prices. Actual cash value would pay only the depreciated amount.
A short assessment of comprehension before advancing.