Insurance
What is the regular payment made to maintain an insurance policy?
Premium
What is a credit score designed to help lenders assess?
Credit risk or the likelihood that a borrower will repay as agreed.
What is a mortgage?
A loan used to purchase a property.
What does it mean to be in debt?
Money owed to a lender or another person.
What does owning a stock mean?
An ownership share in a company.
What is the difference between a premium and a deductible?
A premium is paid to maintain the policy; a deductible is the amount the policyholder pays toward a covered loss before the insurer pays its share, subject to policy terms.
What is the difference between a credit report and a credit score?
A credit report contains information about credit accounts and borrowing activity; a credit score is a numerical measure calculated using information in a credit file.
What is equity in a home?
The portion of the property's value the owner owns after accounting for debt secured by the property.
What is collateral?
An asset pledged to secure a loan.
What is diversification?
Spreading investments across different assets to reduce concentration risk.
What is an exclusion, and why does it matter?
An exclusion is something the policy does not cover. It matters because a loss may not qualify for payment.
Why can paying only the minimum on a credit card be costly?
: Interest may accumulate, extending the repayment period and increasing the total borrowing cost.
: Name three expenses homeowners may have besides their mortgage principal and interest.
property taxes, homeowners insurance, maintenance, repairs, HOA fees, and certain other ownership expenses.
What is the difference between delinquency and default?
Delinquency means a required payment is overdue. Default means the borrower has failed to meet obligations under the loan agreement; its precise meaning and consequences depend on the agreement and applicable law.
What is the difference between a stock and a bond ?
A stock represents ownership in a company; a bond generally represents a loan to an issuer.
A renter's laptop is stolen. Why might the landlord's insurance not pay to replace it?
The landlord's policy generally covers the building and the landlord's interests, not all the renter's personal belongings. Renters insurance may provide that protection, subject to its terms.
What is credit utilization, and why can high utilization be a concern?
Credit utilization is the share of available revolving credit being used. High utilization may affect credit scores and can indicate reliance on borrowed money.
Why might renting be a better choice for someone who expects to move within two years?
Renting can preserve flexibility and avoid the transaction costs and risks of buying and selling over a short period.
Why can a loan with a low monthly payment still be expensive?
A long repayment term can mean more interest paid over time. Fees and the interest rate also affect the total cost.
What is an index fund, and why might an investor choose one?
An index fund is designed to track a market index. It can provide exposure to a group of investments instead of requiring the investor to select individual stocks.
Two policies cover the same type of loss. One has a lower premium but a much higher deductible. Explain why neither policy is automatically the better choice.
The lower-premium policy may cost less without a claim, but the higher deductible could leave the policyholder paying more after a covered loss. Coverage limits and exclusions also matter.
Someone says, “My credit limit is $5,000, so I can afford to spend $5,000.” Explain the mistake in this reasoning.
A credit limit is the amount available to borrow, not an amount the person can necessarily afford to repay. Spending it can create debt and interest costs.
A person can afford a mortgage but would use nearly all their savings for the down payment. Explain two financial risks.
The person could lack money for emergencies and repairs, face difficulty if income changes, and become financially stretched despite making the monthly payment.
Explain how a high-cost payday loan could make it harder for someone to pay their other bills.
High fees and a short repayment deadline can leave the borrower short on cash, causing missed bills or further borrowing.
Why should someone consider their risk tolerance, time horizon, and emergency savings before investing?
Someone needs accessible money for emergencies and near-term expenses. Their time horizon and ability to tolerate losses should influence how much risk they take.