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Quiz: Insurance and Risk Management

Test your understanding of insurance and risk management concepts.

1. What is the insurance premium?

  1. The amount you must pay before insurance starts covering costs
  2. The regular payment you make to maintain insurance coverage
  3. The maximum you'll pay out-of-pocket in a year
  4. A fixed amount you pay for each medical visit
Show Answer

The correct answer is B. An insurance premium is the amount you pay regularly (usually monthly) to keep your insurance policy active, even if you never file a claim. Think of it as a membership fee. Option A describes a deductible. Option C describes an out-of-pocket maximum. Option D describes a co-payment.

Concept Tested: Insurance Premium

See: Insurance Terminology

2. What is a deductible?

  1. The monthly fee you pay for insurance
  2. The percentage of costs you pay after meeting your deductible
  3. The amount you must pay out-of-pocket before insurance starts paying
  4. The maximum amount insurance will pay in a year
Show Answer

The correct answer is C. A deductible is the amount you must pay yourself before your insurance company begins paying for covered expenses. For example, with a $1,500 deductible, you pay the first $1,500 of medical costs, then insurance kicks in. Deductibles typically reset annually. Higher deductibles mean lower premiums but more immediate costs if you need care.

Concept Tested: Insurance Deductible

See: Deductible Explanation

3. Which health insurance plan type requires you to choose a primary care physician and get referrals to see specialists?

  1. PPO (Preferred Provider Organization)
  2. HMO (Health Maintenance Organization)
  3. HDHP (High-Deductible Health Plan)
  4. Catastrophic plan
Show Answer

The correct answer is B. HMO plans require you to select a primary care physician who coordinates all your care and provides referrals to specialists. HMOs generally have lower premiums and out-of-pocket costs but less flexibility. PPO plans (A) don't require referrals. HDHPs (C) have high deductibles paired with HSAs. Catastrophic plans (D) are minimal coverage for emergencies.

Concept Tested: HMO Plans

See: Types of Health Insurance Plans

4. What is the "triple tax advantage" of Health Savings Accounts (HSAs)?

  1. Tax deductions for premiums, deductibles, and co-pays
  2. Tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses
  3. Lower taxes on income, investments, and property
  4. Tax credits for health insurance, medical expenses, and prescriptions
Show Answer

The correct answer is B. HSAs offer three unique tax benefits: (1) contributions reduce your taxable income, (2) money grows tax-free through investments, and (3) withdrawals for qualified medical expenses are never taxed. This makes HSAs one of the most powerful savings vehicles available, especially if you're healthy and can let money grow for decades before using it.

Concept Tested: Health Savings Account

See: Health Savings Accounts

5. Auto insurance liability limits are written as three numbers like "100/300/100." What do these numbers represent?

  1. Coverage for your car, other cars, and property damage (in thousands)
  2. Bodily injury per person, bodily injury per accident, property damage per accident (in thousands)
  3. Deductible amounts for collision, comprehensive, and liability
  4. Premiums per month for liability, collision, and comprehensive
Show Answer

The correct answer is B. The three numbers represent: (1) maximum paid per person for bodily injury ($100,000), (2) maximum paid per accident for all injuries ($300,000), and (3) maximum paid per accident for property damage ($100,000). These limits determine how much the insurance company will pay if you cause an accident. State minimums are often inadequate—higher limits provide better protection from personal liability.

Concept Tested: Liability Coverage

See: Auto Insurance Liability Coverage

6. What type of auto insurance coverage pays for your car if a deer runs into it?

  1. Liability coverage
  2. Collision coverage
  3. Comprehensive coverage
  4. Uninsured motorist coverage
Show Answer

The correct answer is C. Comprehensive coverage pays for damage from non-collision events including hitting animals (yes, hitting a deer is comprehensive, not collision!), theft, vandalism, weather, fire, and falling objects. Collision coverage (B) pays for crashes with vehicles or objects. Liability (A) pays for damage you cause to others. Uninsured motorist (D) pays if you're hit by someone without insurance.

Concept Tested: Comprehensive Coverage

See: Comprehensive Coverage

7. Why is renter's insurance important even though your landlord has insurance?

  1. Your landlord's insurance covers your personal belongings
  2. Your landlord's insurance only covers the building structure, not your belongings
  3. Renter's insurance is legally required in all states
  4. Your landlord's insurance doesn't cover fire damage
Show Answer

The correct answer is B. Your landlord's insurance covers only the building structure itself, not your personal property. If there's a fire, theft, or other damage, your belongings are not covered by the landlord's policy. Renter's insurance (typically $15-30/month) protects your possessions and provides liability coverage. It's not legally required (C is false), but it's essential financial protection.

Concept Tested: Renter's Insurance

See: Renter's Insurance Essentials

8. What is the main difference between term life insurance and whole life insurance?

  1. Term life is permanent; whole life is temporary
  2. Term life is pure death benefit for a specific period; whole life is permanent with cash value
  3. Term life requires medical exams; whole life doesn't
  4. Term life is more expensive than whole life
Show Answer

The correct answer is B. Term life insurance provides coverage for a specific period (10, 20, or 30 years) with no cash value—pure protection at low cost. Whole life insurance provides lifetime coverage and builds cash value, but costs 5-15 times more. For most young adults, "buy term and invest the difference" is the better financial strategy. Options A and D are backwards, and option C is incorrect.

Concept Tested: Term Life Insurance vs Whole Life Insurance

See: Life Insurance Comparison

9. What is an umbrella policy?

  1. Insurance that covers all types of property damage
  2. Additional liability coverage beyond your auto and homeowner's policy limits
  3. A policy that combines health, auto, and home insurance
  4. Insurance for rain damage to outdoor events
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The correct answer is B. An umbrella policy provides additional liability coverage (typically $1-5 million) beyond the limits of your auto and homeowner's insurance. If you cause an accident exceeding your regular policy limits, the umbrella policy covers the excess. It's remarkably inexpensive ($150-300/year for $1 million) and protects your assets from lawsuits. It's not a bundled policy (C) or weather insurance (D).

Concept Tested: Umbrella Policy

See: Umbrella Policies

10. Which risk management strategy involves buying insurance to transfer financial risk to someone else?

  1. Risk avoidance
  2. Risk reduction
  3. Risk transfer
  4. Risk acceptance
Show Answer

The correct answer is C. Risk transfer means buying insurance to shift the financial burden of potential losses to an insurance company. You pay a premium, and they assume the risk of paying for covered losses. Risk avoidance (A) means eliminating the risk entirely. Risk reduction (B) means taking steps to lower probability or impact. Risk acceptance (D) means self-insuring and paying for losses yourself. Insurance is appropriate for low-probability, high-cost risks.

Concept Tested: Risk Management Strategy

See: Risk Management Strategies