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

Insurance protects against financial losses by pooling risk among many policyholders, with the insurer paying claims from collected premiums.

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

Term life insurance provides coverage for a set period (10, 20, 30 years) at lower premiums, while whole life provides lifelong coverage with a savings component that builds cash value.

Question 3

What is a deductible in insurance?

Accepted Answer

The amount you pay out of pocket before insurance coverage begins

Answer

A deductible is your share of costs before the insurance company starts paying. Higher deductibles generally mean lower premiums.

Question 4

What is liability insurance?

Accepted Answer

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

Answer

Liability insurance pays for injuries or damage you cause to others, protecting your personal assets from lawsuits and claims.

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

An emergency fund provides a financial buffer for unexpected expenses like medical bills, car repairs, or job loss, preventing the need for high-interest debt.

(NAB) National Australia Bank Practice Test

(NAB) National Australia Bank Practice Test

NAB Risk Management and Insurance