Insurance Fundamentals
What is an insurance premium?
Your monthly payment to your insurer, regardless of whether you use any services
Bruce has just graduated from college and decides that instead of paying for insurance, he'll work on building up his emergency fund. This way, if something goes wrong, he can just pay for it using cash. Why is this a risky idea?
An accident or illness can strike at any time and be quite expensive, so it's possible he'd need a big sum of money well before his emergency fund was large enough
You cause an accident and injure the other driver. The case goes to trial and there is a verdict to compensate the injured person with $58,000. You have a $75,000 coverage limit per person for Bodily Injury. How much will the insurance company pay BACK (after injuries paid off) ?
$17,000
What does the term "withholding" mean in reference to your paycheck?
How much is being taken out of your paycheck for things like taxes, employer sponsored health insurance, and retirement
You are starting your first job and you are asked to complete some paperwork on your first day. Which form will determine how much money is withheld from your paycheck for taxes?
W-4
Insurance companies make money by...
Collecting more in premiums than they need to pay out each year
Which term refers to the percentage of covered medical expenses you are responsible for paying after your deductible is met?
Co-insurance
Someone broke into Sam’s car by smashing the passenger window. Which type of auto insurance coverage will help cover the cost to get the window replaced?
Comprehensive
Money not from a job (like interest or dividends)
What is the name of the tax form that requires you to provide identification and proves you are eligible to work in the U.S.?
I-9
What is an out-of-pocket maximum?
Stated amount out of pocket the insured can pay for medical costs in a 12-month period before copayments end.
Why would someone choose to get long term disability insurance even if they already have health insurance?
Health insurance only covers medical bills, while long term disability will help compensate for lost work with a percentage of their income
Your renter's insurance policy costs $20/month and has a $1,000 deductible. A thief breaks into your apartment and steals your $800 TV set. How much would your insurance company pay?
$0
When you complete your 1040 form, if you overpaid your taxes and the government owes you money, that is called a __________.
Refund
Brynli has a part-time job that pays $12/hour and works about 50 hours every month. Her withholdings are Social Security (6.2%), Medicare (1.45%) and federal income tax (10%). What is her approximate net pay?
$500
Insurance companies operate by charging individuals different prices for coverage depending on their risk levels. Then, they collect everyone's monthly premiums together and use the money to make payments when people file a claim (for example, someone is in an auto accident or needs to see a doctor). This concept is known as…
Risk pooling
Your health insurance plan has a $20 copay for certain covered prescription medications. You arrive at the pharmacist and pick up your prescription (which is covered under your plan) which has a list price of $75. How much would you pay the pharmacy?
$20
What describes a health insurance marketplace?
A federal- or state-run website with the individual health insurance plans available in a given state
Mandatory government spending includes which of the following?
1. Infrastructure
2. Social Security and Medicare
3. Healthcare and Military
4. Education and Agriculture
Social Security and Medicare
When determining whether you NEED to file a federal tax return, each of these questions matters EXCEPT...
1. How much income did you make this year?
2. What state do you live in?
3. What type of income did you make this year?
4. Are you claimed as an independent or dependent?
What is risk-pooling?
organizing people into a group to collectively absorb the risk faced by each individual
The Higher the deductible...
The lower the premium
What is a coverage limit?
maximum amount the insurance company will pay if you file a claim
What is Gross Pay?
Total pay before any deductions
Form that shows how much you earned and how much tax was taken