AFC Risk Management and Insurance 2

Question 1

A client's auto insurance has a $1,000 deductible. They file a $1,500 hail damage claim. How much will the insurer pay?

Accepted Answer

$500

Answer

The insurer pays claim minus deductible: $1,500 - $1,000 = $500. Comprehensive coverage covers hail damage.

Question 2

Which risk management strategy involves choosing not to insure a particular risk because the potential loss is financially manageable?

Accepted Answer

Risk retention

Answer

Risk retention is the deliberate decision to self-insure against a risk because the potential impact can be absorbed.

Question 3

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?

Accepted Answer

No, the recommendation is 10-12 times income for this family situation

Answer

With $160,000 against a recommended $800,000-$960,000, there is a significant $640,000-$800,000 coverage gap.

Question 4

What type of insurance protects a homeowner if a guest slips on their icy walkway and breaks a leg?

Accepted Answer

Liability coverage within the homeowner's policy

Answer

Liability coverage protects against claims when someone is injured on the property due to the homeowner's negligence.

Question 5

A 60-year-old is evaluating long-term care insurance. What factor most significantly impacts premium cost?

Accepted Answer

Age at time of purchase

Answer

Age at purchase is the most significant premium factor, with costs increasing substantially each year due to increased likelihood of needing care.

AFC - Accredited Financial Counselor Practice Test