Personal Finance
Exam Practice Tests
Course Introduction
Personal Finance is a foundational course designed to equip students with essential knowledge and practical skills for managing their individual financial lives. Covering topics such as budgeting, saving, credit management, investing, insurance, taxes, and retirement planning, the course emphasizes smart decision-making and responsible financial behavior. Students learn how to set realistic financial goals, analyze spending habits, understand different financial products, and navigate major financial decisions. By exploring real-world scenarios and challenges, Personal Finance prepares students to build a sound financial future and make informed economic choices throughout their lives.
Recommended Textbook
Introduction to Risk Management and Insurance 9th Edition by Mark S. Dorfman
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23 Chapters
1245 Verified Questions
1245 Flashcards
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Page 2
Chapter 1: Fundamentals and Terminology
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70 Verified Questions
70 Flashcards
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Sample Questions
Q1) Billy is driving to the beach for spring break. Before leaving on his trip,he takes some cold medicine that makes him sleepy. He falls asleep at the wheel and collides with another car on the highway and breaks his leg. In this context,which of the following is the hazard?
A)spring break
B)knowing how to drive
C)taking the medicine
D)broken leg
Answer: C
Q2) All of the following are costs to society arising from an insurance system's operation except:
A)payments for losses caused by fraudulent claims
B)payments for losses caused by exaggerated claims
C)use of land, labor and capital to operate the insurance companies
D)payments for losses caused by windstorms such as tornadoes
Answer: D
Q3) Hazards may increase either the frequency or the severity of losses.
A)True
B)False
Answer: True
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Chapter 2: Defining the Insurable Event
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75 Verified Questions
75 Flashcards
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Sample Questions
Q1) Assume Gerald is injured because his landlord,Barbara,fails to replace burned-out light bulbs in the hallway of his apartment building. If Gerald trips and falls and then sues Barbara for his injuries,the basis of his suit most likely will be:
A)negligence
B)intentional interference
C)res ipsa loquitur
D)breach of contract (lease)
Answer: A
Q2) Which of the following reasons for canceling a wedding would likely NOT be covered by a typical wedding insurance policy?
A)bride gets food poisoning
B)church suffers a fire loss the day before the wedding
C)groom decides he doesn't want to get married
D)caterer is unable to provide food for the reception
Answer: C
Q3) Insurance works best when it is sold to those who expect the greatest losses.
A)True
B)False
Answer: False
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4
Chapter 3: Risk Management
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61 Verified Questions
61 Flashcards
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Sample Questions
Q1) Which tool or tools is/are used by most individuals for handling the loss exposure of physical damage to their vehicles caused by collisions?
i. Avoidance
II. Control
III. Retention
IV. Insurance
A)I, II, III, and IV
B)II and IV only
C)III and IV only
D)II, III and IV only
Answer: D
Q2) Provide a statement of the overall goal of the risk management function. Answer: The steps in the pre loss risk management process include 1)identifying and categorizing loss potential,2)measuring several dimensions of the exposure (severity,frequency,most likely,worst case),3)developing and implementing how the exposures are to be handled and,4)regularly reviewing and reevaluating the whole process (steps 14).
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Chapter 4: Financial Services Companies
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42 Verified Questions
42 Flashcards
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Sample Questions
Q1) To own a part of a stock insurance company,a person must purchase an insurance policy from that company.
A)True
B)False
Q2) The Gramm-Leach-Bliley (GLB)Act:
A)allows banks to acquire insurance companies
B)prohibits banks from acquiring insurance companies
C)allows banks to form insurance companies
D)both a and c
Q3) Stock insurers:
A)are unincorporated
B)only sell property and liability insurance
C)cannot sell automobile insurance
D)are organized as profit making ventures
Q4) Buying insurance from a mutual may not always be desirable because:
A)the mutual is trying to make a profit for the stockholders
B)you may be paying for other insureds' losses
C)premiums may be greater than that of a stock company if the mutual is improperly managed
D)the officers of the company are not responsible to the policy holders
Page 6
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Chapter 5: Insurance Occupations
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57 Verified Questions
57 Flashcards
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Sample Questions
Q1) The Medical Information Bureau maintains information on people who have taken medical examinations in connection with the purchase of life insurance.
A)True
B)False
Q2) Four states do not require people who sell insurance to be licensed.
A)True
B)False
Q3) Brokers generally stand in the same position as life insurance agents with respect to the legal power to bind the insurer to a life insurance contract.
A)True
B)False
Q4) Direct writing:
A)describes the distribution system used by independent agents and brokers in the property/liability area
B)is used only by life insurers
C)is an expensive way to distribute insurance to high income people
D)describes a system of insurance company distribution using employee/agents
Q5) What is the difference between an agent and a broker?
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Chapter 6: the Insurance Market: the Economic Problem
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43 Verified Questions
43 Flashcards
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Sample Questions
Q1) Stare decisis means
A)to stand by decisions
B)to stand for decisiveness
C)to let the thing speak for itself
D)to stare indecisively
Q2) All of the following are rights of insurance consumers except:
A)the right to accurate information
B)the right to have complaints heard
C)the right to affordable prices
D)the right to product development and improvement
Q3) In choosing an insurance company,the most important factor is A)how many dollars it pays for claims
B)the amount of liquid assets the insurer has
C)its financial strength
D)the state in which it is domiciled
Q4) The role of the court is to promote the consumer's interest,while the role of the insurance commissioner is to promote the insurer's interest.
A)True
B)False
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Chapter 7: Insurance Regulation
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62 Verified Questions
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Sample Questions
Q1) Risk-based capital requirements have been developed for both life and non-life insurers.
A)True
B)False
Q2) It is generally illegal for an insurance agent to share her commissions with an insured.
A)True
B)False
Q3) The right of the states to regulate insurance was first established by the:
A)SEUA decision
B)Paul v. Virginia decision
C)National Association of Insurance Commissioners Act
D)McCarran Ferguson Act
Q4) NAIC stands for:
A)National Association of Investment Commissioners
B)National Affiliated Insurance Commissioners
C)National Association of Insurance Commissioners
D)None of the above
Q5) What is the difference between prior approval and open rating laws?
Q6) Explain briefly the purpose of the McCarran Act.
Page 9
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Chapter 8: Insurance Contracts
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62 Verified Questions
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Sample
Questions
Q1) The parol evidence rule
A)allows statements made before the policy is sold to affect policy coverage
B)benefits the insured more than the insurer
C)makes written evidence more important than oral evidence
D)makes oral evidence more important than written evidence
Q2) An affirmative warranty states that:
A)something is true only at the present time
B)something will be true in the future
C)all information provided on the application for coverage is affirmed to be truthful
D)none of the above
Q3) The principle of indemnity
A)is illegal in many countries
B)reduces morale hazard
C)only applies in life and health insurance
D)eliminates insurance fraud
Q4) Since the homeowners' insurance policy is written by the insurer,ambiguities are interpreted in favor of the insured.
A)True
B)False
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Chapter 9: Basic Property and Liability Insurance Contracts
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49 Verified Questions
49 Flashcards
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Sample Questions
Q1) If Marcell has a $250,000 home and two $200,000 fire insurance policies,how much can he collect in total from both policies following a $100,000 loss?
A)$100,000
B)$200,000
C)$250,000
D)none of the above
Q2) Deductibles serve three major purposes,and two of those are:
A)reduce moral hazards; save on claims handling expenses
B)reveal moral hazards; eliminate morale hazards
C)reduce morale hazards; save on claims handling expenses
D)reveal morale hazards, eliminate moral hazards
E)reduce claims handling expenses; encourage avoidance
Q3) Exclusions are contained in insurance policies for all the following reasons except:
A)to eliminate catastrophic perils
B)to eliminate coverage of property or perils for which the insurer wants an extra premium
C)to control moral hazard
D)to exclude the influence of reinsurance arrangements
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Chapter 10: Homeowners Insurance
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51 Verified Questions
51 Flashcards
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Sample Questions
Q1) Intentional torts are usually not covered by liability insurance policies.
A)True
B)False
Q2) With respect to the HO dwelling coverage,select the most accurate statement:
A)if the amount of insurance carried divided by 80% of the replacement cost equals 1 or greater, the company will pay the replacement cost minus the deductible, but no more than the policy limit
B)if the amount of insurance carried divided by 80% of the replacement cost equals 1 or greater, the company will pay replacement cost minus the deductible
C)if the amount of insurance divided by 80% of the replacement cost equals 1 or greater, the company will multiply that result by the loss, subtract the deductible, then pay that amount
D)the insurer must only pay actual cash value for any loss unless the insured has insurance equal to 100% of the replacement cost of the property
Q3) No consequential or loss of use losses are covered by the standard homeowners' policy.
A)True
B)False
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Chapter 11: the Personal Auto Policy
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) All of the following would be paid under the PAPs Other than Collision coverage except:
A)the car is sprayed with paint as it passes under a bridge being painted
B)the driver of the car backs off a curb and damages the car's oil pan
C)the windshield is broken by a "flying" rock
D)while the insured is adjusting the carburetor gasoline spills over the engine and causes a fire
Q2) What is the difference between a single limit and a split limit in expressing liability limits in the PAP?
Q3) Which of the following coverages is provided by the PAP?
A)rental car reimbursement coverage for any car rental, regardless of why the car is needed
B)liability insurance
C)medical expense for disease
D)personal property coverage
Q4) Explain the purpose of Uninsured Motorist coverage.
Q5) What is the difference between Collision and Other Than Collision coverages? Why does the PAP list certain perils in Other Than Collision when they can be caused by collision? What happens if the cause of loss is not listed?
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Chapter 12: Professional Financial Planning
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48 Verified Questions
48 Flashcards
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Sample Questions
Q1) Sound financial planning requires a trade off between
A)risk and return alternatives
B)gratification and savings
C)investment and saving alternatives
D)fees and returns
Q2) There is never any income tax when an individual surrenders his life insurance contract.
A)True
B)False
Q3) Grandpa Jones is a divorced elderly man (and quite a catch according to the ladies at the retirement home). He has a lot of money and would like to minimize his estate tax liability as much as possible. He has decided to give each of his children,grandchildren,and great-grandchildren a cash gift. How much can he give to each child and avoid gift tax liability?
A)$10,000
B)$11,000
C)$15,000
D)$22,000
Q4) Explain what a will is.What happens when a person dies without a valid will?
Q5) Why is it necessary to buy life insurance on a non-wage earning spouse?
Page 14
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Chapter 13: Life Insurance Policies
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55 Flashcards
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Sample Questions
Q1) A convertible term policy allows the insured to convert a term policy into any other type of policy including a different type of term policy.
A)True
B)False
Q2) Which of the following best describes what life insurance is designed to protect against?
A) dying before financial obligations have been met
B)outliving your income
C)probability of dying increasing as you grow older
D)loss of income due to retirement
Q3) Why have term life insurance rates decreased in recent years?
A)they have not decreased; this is a trick question
B)improved human longevity
C)decrease in percentage of the population infected with HIV/AIDS
D)regulatory intervention
Q4) What are the advantages of saving with cash value whole life insurance?
Q5) Universal life insurance is an interest sensitive product.
A)True
B)False
Q6) In general,what are the uses for term life insurance? Provide examples.
Page 15
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Chapter 14: Standard Life Insurance Contract Provisions
And Options
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60 Verified Questions
60 Flashcards
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Sample Questions
Q1) The gender of the person receiving periodic income payments is a factor in the settlement of life insurance proceeds under the:
A)fixed period option
B)interest option
C)fixed amount option
D)life income option
Q2) Mr.Harvey needs life insurance. He is deciding whether to buy a new policy or to reinstate the one that he allowed to lapse last year. He asks you to explain the advantage of reinstatement versus purchasing a new policy,and you tell him:
A)settlement options in a new policy may be less favorable than those in the old policy
B)he will not not have to present evidence of insurability
C)he will not have to pay premiums that are in arrears
D)the reinstated policy will not have an incontestability clause
Q3) One life insurance dividend option is to allow dividends to accumulate with compound interest with the insurance company.
A)True
B)False
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Page 16
Chapter 15: Annuities
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Sample Questions
Q1) A pure annuity has the greatest monthly benefits per $1,000 of premium payment.
A)True
B)False
Q2) The period during which the insured is making annuity payments to the insurer is the:
A)retirement period
B)deferral period
C)accumulation period
D)liquidation period
Q3) Insurers have greater administrative charges for flexible-premium deferred annuities (FPDAs)than they do for single-premium deferred annuities (SPDAs)because:
A)they do not have minimum required deposits for FPDAs
B)there is considerably more adverse selection among persons purchasing FPDAs
C)FPDA purchasers have much greater flexibility in making premium payments
D)This is a trick question; insurers do not impose higher administrative charges on FPDAs versus SPDAs
Q4) In an annuity the risk of dying too soon is transferred to the insurer.
A)True
B)False
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Chapter 16: Medical Expense and Disability Insurance
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54 Verified Questions
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Sample Questions
Q1) Because medical expenses may be covered by more than one policy,health insurance policies normally contain a ______________ clause to prevent overpayment to the insured.
A)coordination-of-benefits
B)double indemnity
C)pro-rata
D)other insurance
Q2) Which one of the following is not a reason for the increase in U.S.health care costs?
A)more expensive medical equipment and buildings
B)increased medical malpractice insurance costs
C)hospital labor operating costs
D)increased cost of funeral expenses
Q3) Major medical insurance usually requires the insured to pay a percentage of all losses after a deductible up to an out-of-pocket limit.
A)True
B)False
Q4) Explain how a typical major medical contract works.
Q5) Distinguish between a guaranteed renewable and a noncancellable health insurance contract.
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Chapter 17: Advanced Topics in Risk Management
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Sample Questions
Q1) All the following are important in the transfer/retention decision related to the ability to pay for losses except:
A)liquidity of assets
B)stability of net income
C)amount of net worth
D)historical stockholder dividend pattern
Q2) Traditional risk management is primarily concerned with:
A)speculative risks
B)insurance contracts
C)pure risks
D)subjective risks
Q3) What factors are emphasized more in international risk management than domestic risk management?
Q4) The term "over-insurance" includes purchasing a "low" deductible and purchasing higher than needed policy limits.
A)True
B)False
Q5) What are the generic tools used to deal with the exposures in the area of financial risk management?
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Chapter 18: Commercial Property Insurance
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Sample Questions
Q1) Ocean marine insurance typically covers all the following categories of loss except:
A)losses caused by ship owner's fraud
B)loss of ship by pirates
C)loss of cargo in a tidal wave
D)loss of freight
Q2) A bailees' customer policy is a type of ocean marine insurance.
A)True
B)False
Q3) Floater policies are used to insure:
A)property that is not waterproof
B)property that is easily and frequently moved
C)property that can't be covered by any other type of insurance
D)small boats, canoes, rafts, etc
Q4) More inland than ocean marine insurance has been sold in recent years.
A)True B)False
Q5) The personal articles floater is a type of inland marine coverage
A)True B)False
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Chapter 19: Commercial Liability Insurance
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59 Verified Questions
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Sample Questions
Q1) One of the suggested solutions for the product liability problem is a statute of limitations to bar defendants from having any allowed defense after seven years.
A)True
B)False
Q2) Keith hosts a New Years Eve party,and Margaret attends the party. She drinks several beers at the party,and Keith provided the beers. She leaves the party in her car,has an accident and is injured. Which of the following is true?
A)all judges are required to find that Keith is liable for Margarets injuries
B)no judge will find that Keith is liable for Margarets injuries, since he was not serving alcohol for a profit
C)Margaret cannot sue Keith for any injuries sustained, since she voluntarily consumed the alcohol
D)none of the above
Q3) An "occurrence" based policy is also known as a "claims made" policy in professional liability insurance.
A)True B)False
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21
Chapter 20: Bonding,Crime Insurance and Reinsurance
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Sample Questions
Q1) Pro-rata reinsurance determines the reinsurers share of losses in a different manner than excess of loss reinsurance.
A)True
B)False
Q2) Miika is hired by the City of Poseidon to construct a new public swimming pool. The city requires Miika to purchase a bond guaranteeing her performance on the construction project. In this bond,the city is the:
A)Principal
B)Obligee
C)Surety
D)Insured
Q3) What is the difference between the crimes of theft,robbery and burglary?
Q4) Catastrophe reinsurance can be described as a form of excess of loss reinsurance. A)True
B)False
Q5) The principal in a surety contract owes a duty of performance to the obligee.
A)True
B)False
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Chapter 21: Employee Benefits
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Sample Questions
Q1) The maximum tax-deductible contribution an employer can take on a profit-sharing plan distribution is:
A)$25,000 per employee
B)25% of all eligible employees' compensation
C)50% of all eligible employees' compensation
D)5% of after-tax corporate profits
Q2) The monthly fee that HMOs charge employers is called the A)capitation payment
B)capitation and insurance premium
C)insurance premium
D)subscription fee
Q3) A defined contribution retirement plan defines the amount of benefits to be contributed to the employee during retirement.
A)True
B)False
Q4) The term "tax deferral" refers to the ability to pay taxes at a later date on otherwise currently taxable income.
A)True B)False
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Chapter 22: Social Security
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Sample Questions
Q1) The "retirement test" reduces Social Security benefits if there is non-wage (for example,dividend or interest)income in excess of about $6,000.
A)True
B)False
Q2) Which one of the following is not a characteristic of Social Security?
A)benefits are individually selectable by the covered individual
B)participation is compulsory
C)it can operate on a pay as you go basis with no prefunding
D)legislative activity may change the benefits
Q3) There will soon be a drastic decline in the number of persons receiving Social Security disability benefits.
A)True
B)False
Q4) Managed care options available through Medicare:
A)are mandated for all Medicare participants
B)result in lower out-of-pocket costs for participants
C)are prohibitively expensive for many participants
D)both a & b
Q5) Describe the characteristics of a government insurance program.
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Chapter 23: Unemployment and Workers Compensation Insurance
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Sample Questions
Q1) Which of the following is not a requirement for receiving unemployment benefits?
A)experience a waiting period before benefits are paid
B)have an earnings record
C)have a continuing interest in employment
D)the national unemployment percentage must exceed a certain level
Q2) List and explain briefly the purposes of the worker's compensation laws.
Q3) Which of the following do not influence a workers' eligibility for,and amount of,unemployment benefits?
A)waiting period
B)earnings record
C)continuing interest in employment
D)type of work performed
Q4) Unemployment insurance is financed by a _______________on covered wages.
A)7)65% federal tax on covered wages up to $7,000
B)6)2% federal tax on covered wages up to $7,000
C)5)4% federal tax on covered wages up to $87,000
D)6)2% state tax on covered wages up to $7,000
Q5) Before worker's compensation laws,what legal defenses did employers use when they were sued by an employee injured at work? Briefly explain each of these defenses.
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