Question

1.Jared and Laura have renter’s insurance with a $500 deductible and a $20,000 coverage limit. Unfortunately, a fire destroys their apartment, requiring them to stay in a hotel for $100 a night for 10 nights. In addition, they lost $7,000 worth of property. How much will their renter’s insurance pay?

A.$7,500.

B.$7,000.

C.$6,500.

D.$8,000.

2. Jason, age 49, recently used $10,000 from his IRA to purchase his first home. Which of the following applies?

A.Jason will have to pay taxes and a penalty for taking a distribution from his account before age 59½.

B.Jason will not have to pay taxes nor a penalty since he is withdrawing money from his own IRA.

C.Jason will incur a 10% penalty for taking a distribution before age 50½, but he will not have to pay income taxes since he is a first-time homebuyer.

D.Jason will have to pay taxes on his distribution, but he will not incur an additional 10% penalty since he is a first-time homebuyer.

Answer 1

1) Renter's Insurance: Renter's Insurance is the insurance taken by the Renters of an apartment while Landlord's Insurance taken by the owner. Renter's Insurance covers the following 3 types of protection.

a) Personal Property

b) Additional living expenses

c) Liability Protection.

Deductibles: Deductibles is the amount you are responsible for the paying before your insurance coverage.The amount of your deductibles is reduced from your insurance payment.

Calculation Of insurance Payment:

Amounts eligible for Insurance payment

Property Lost - $7,000

Additional living expenses = $100 * 10 days = $ 1000.

Total Eligible Insurance amount = $ 7000 +$1000 = $8000

Deductible Amount = $500

Total Renter's Insurance Pay = Total Eligible Insurance Amount - Deductibles

= $8000 - $500

Total Renter's Insurance Pay = $7500

Hence Option A is correct.

2) Individual Retirement Account: IRA  is an account used by the individual for contributing towards their retirement savings which are tax advantageous. IRA's can be of different types based on their employment status.The amount contributed toward IRA cannot be withdrawn before 59 1/2 age , if withdrawn attracts a penality of 10% and is subjectable to tax based on the type of the IRA.

There is an exception to this general rule that you can withdraw an amount of upto $10,000 from your IRA as a downpayment or to build a new home. There will be no penaty of 10% in this case but the amount is subject to Income tax

A.Jason will have to pay taxes and a penalty for taking a distribution from his account before age 59½.

The option is incorrect as this will not applicable for first home buyer.

B.Jason will not have to pay taxes nor a penalty since he is withdrawing money from his own IRA.

The option is incorrect because he has to pay the taxes

C.Jason will incur a 10% penalty for taking a distribution before age 50½, but he will not have to pay income taxes since he is a first-time homebuyer.

The option is incorrect because he need not pay 10% penalty but have to pay taxes and age limit is 59 1/2

D.Jason will have to pay taxes on his distribution, but he will not incur an additional 10% penalty since he is a first-time homebuyer.

The option is correct because the first home buyers can withdraw mouney from IRA and does not attract any penalty but need to pay income taxes.