Risk Management and Insurance Flashcards
6 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Risk Management and Insurance flashcards as text
A client's auto insurance has a $1,000 deductible. They file a $1,500 hail damage claim. How much will the insurer pay?
Answer: $500
The insurer pays claim minus deductible: $1,500 - $1,000 = $500. Comprehensive coverage covers hail damage.
Which risk management strategy involves choosing not to insure a particular risk because the potential loss is financially manageable?
Answer: Risk retention
Risk retention is the deliberate decision to self-insure against a risk because the potential impact can be absorbed.
A client has employer life insurance at 2x salary ($160,000 on $80,000 income) with a non-working spouse and three children. Is this adequate?
Answer: No, the recommendation is 10-12 times income for this family situation
With $160,000 against a recommended $800,000-$960,000, there is a significant $640,000-$800,000 coverage gap.
What type of insurance protects a homeowner if a guest slips on their icy walkway and breaks a leg?
Answer: Liability coverage within the homeowner's policy
Liability coverage protects against claims when someone is injured on the property due to the homeowner's negligence.
A 60-year-old is evaluating long-term care insurance. What factor most significantly impacts premium cost?
Answer: Age at time of purchase
Age at purchase is the most significant premium factor, with costs increasing substantially each year due to increased likelihood of needing care.
What is the purpose of an elimination period in a disability insurance policy?
Answer: The waiting period between disability onset and when benefits begin, serving as a time-based deductible
The elimination period is a time-based deductible - the days after becoming disabled before payments begin. Longer periods mean lower premiums.