NAB Risk Management and Insurance

Question 1

What is the purpose of insurance in financial planning?

Accepted Answer

To transfer financial risk from an individual to an insurance company in exchange for premiums

Answer

To increase investment returns

Answer

To reduce taxes

Answer

To earn interest on deposits

Question 2

What is the difference between term life and whole life insurance?

Accepted Answer

Term covers a specific period; whole life covers your entire life and builds cash value

Answer

They are identical

Answer

Term life is more expensive

Answer

Whole life has no cash value component

Question 3

What is a deductible in insurance?

Accepted Answer

The amount you pay out of pocket before insurance coverage begins

Answer

The monthly premium payment

Answer

The maximum the insurance will pay

Answer

A discount on your premium

Question 4

What is liability insurance?

Accepted Answer

Coverage that protects you against claims for causing bodily injury or property damage to others

Answer

Insurance for your own medical expenses

Answer

Coverage for your personal property

Answer

Life insurance for dependents

Question 5

What is an emergency fund and why is it important?

Accepted Answer

Three to six months of expenses saved for unexpected financial needs

Answer

Money set aside for vacations

Answer

A retirement savings account

Answer

A type of insurance policy

Question 6

What is the relationship between risk and return in investing?

Accepted Answer

Higher potential returns generally come with higher risk

Answer

There is no relationship

Answer

Higher risk always guarantees higher returns

Answer

Lower risk investments always have higher returns