Question

1. What are the major differences between term and permanent life insurance? When is it best to get term insurance? (15 points)

2. Driving in a severe thunderstorm, Polly collided with another car. Two passengers in the other vehicle were injured. They filed suit against Polly. One claimed $115,000 injuries and the other claimed $135,000 in injuries. The driver of the other vehicle was not harmed, but his car’s damage totaled $6,600.

Polly has bodily injury coverage for 100/300/50. Assume the suit was successful and the court ruled in their favor the amounts in the suit. (20 points)

a) What is the total claim amount?
b) What amount will Polly’s insurance company have to pay to settle these claims?

c) What amount of money will Polly be responsible for paying out of her own pocket in this instance?

3. Amanda had an auto accident with another car with no injuries to anyone. Amanda exchanged information with the other driver, and he admitted he was at fault. He begged her not to report it, saying he had a bad driving record and feared losing his driver’s license. He promised to pay for repairing her car. (10 points)

What should Amanda do? Explain WHY.

4. Winston is married, has four children, owns his home, and has a roofing business. One of Winston’s children has a hereditary heart condition that requires monthly hospitalization for monitoring. (20 points)

In addition to car insurance, what are other types of insurance coverage Winston would be wise to purchase?  Explain WHY he needs each type of coverage.

5. You have a fee-for-service health insurance policy with 80/20 coverage. Your deductible is $750. In February, you had a claim for a doctor’s visit for $250. In May, you have a minor surgical procedure at a clinic that cost $2500. (25 points)

How much of this new claim will you have to pay?

6. Kathy is a thirty-two-year old, stay-at-home mother of three children aged 4, 2, and six months. The family doesn't have much extra money each month. Kathy has no life insurance coverage, but she feels she should buy a policy to cover her life in case something happens to her and her husband would need to provide care for the children. Her husband does not think it is necessary. (10 points)

What kind of life insurance policy would you suggest would be best for her to buy and why?

Answer 1

1. The term life insurance acts as a short-term financial safety net. Compared to the different types of permanent insurance, term life policies are fairly straightforward. You purchase a specific amount of coverage and the policy stays in effect for a set period of time, usually anywhere from five to 30 years. Once the term expires, you’ll have to renew your policy to continue your coverage.

permanent life insurance is designed to stay in place for your entire life. This type of policy offers a death benefit but can also be used as a savings or investment vehicle. Permanent coverage usually costs more than a term life insurance policy.

                                           permanent vs term

                                      permanent                                 term

premium amount                   high                                     low

cash value                             yes                                            no

Length                                    end of life                                  predetermined

If your budget is tight then term insurance is a better option as cash value insurance costs are more. Term insurance would also be suitable for a person with low income but requiring a large cover to protect his family's financial future in case of his death.