Term
| What is your second or third largest monetary investment? |
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Definition
| For most consumers the purchase of a car is the second or third largest monetary investment they will ever make (behind a home and education) |
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Term
| Over 90% of all American workers commute |
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Definition
| by car because convenient mass transit is either not available or inadequate |
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Term
Choosing a new car:
-Cost of ownership |
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Definition
| similarly priced and sized models can have widely varying costs of repair and maintenance: VW Passat vs. Toyota |
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Term
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Definition
Published monthly on a regional basis by the National Automobile Dealer’s Association, this little “blue book” provides resale, wholesale, and retail prices on most domestic and foreign cars.
Pricing is also available online at Kelley Blue Book (kbb.com) or Edmunds (Edmunds.com) |
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Term
| Before buying a used car get a |
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Definition
| Carfax report on the car (use VIN # to look up specific auto…if in a wreck, body shops are required to report the fact of the wreck and a police accident report will record the accident) |
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Term
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Definition
| New cars have a warranty and are “new.” Used cars have already depreciated, and are thus a better value. Used cars used to be poorer quality but now are much better value. |
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Term
New Car Purchase
-Invoice Price |
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Definition
| The car’s actual cost to the dealer |
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Term
New Car Purchase
-Sticker Price |
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Definition
| Price of a car; including options and transportation charges, shown on the manufacturer’s sticker on the window; also called the suggest retail price |
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Term
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Definition
| (Manufacturer’s Suggested Retail Price)—see Sticker Price |
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Term
| Negotiating with a dealer: |
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Definition
-Research what the invoice and sticker price should be on the model you have chosen
-Most experts suggest that a reasonable offer is between $300-$500 over dealer invoice for a car in good supply; expect to pay $1000 over dealer invoice for a car in demand and in short supply
-Keep your negotiations businesslike
-After you have arrived at a price, dealers often spring extra costs on you. Some common add on’s are (next notecard)
Don’t get emotional (no one can force you to buy a car…you can simply walk away) |
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Term
| After you have arrived at a price, dealers often spring extra costs on you. Some common add on’s are: |
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Definition
-Extended service warranties (rarely worth the money…the factory warranty today is typically for a long time…3-5 years);
Credit life insurance (is very expensive and not necessary);
Fees for preparing state required paperwork…called “doc” fees or “title” fees (these fees are rarely negotiable and are fair to pay)
Dealer “paks” including rustproofing, paint sealant, fabric protection (these are rarely worth the money…refuse to pay or ask for a car without them |
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Term
| Financing the Auto purchase |
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Definition
-Banks and credit unions are two major sources of new-and used-car financing
-Car buyers who belong to credit unions will discover that it has more competitive rates
-Another financing option is through an automobile manufacturer’s financing subsidiary…for example, GMAC (General Motors Acceptance Corporation)…the rates are typically higher but arranging for financing happens at the dealer and is very convenient
-Used cars are most often financed by credit unions and banks |
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Term
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Definition
-Today about 25% of cars are leased rather than purchased…up from 10% a decade ago
-At the higher end of the market (about $35,000 or so) about half of cars are leased
-There are many good reasons for leasing…but while leasing requires less money up front, you have no residual value at the end of the lease term…it is usually a smarter financial decision to purchase rather than lease. |
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Term
| Addressing the financial burdens resulting from illness or injury. |
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Definition
A.Covering your direct health care costs via traditional health insurance, HMOs, Medicare or Medicaid.
B.Covering your rehabilitative and custodial care costs.
C.Covering your lost income. |
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Term
| Sources of protection for direct health care costs. |
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Definition
| A.Health maintenance organizations (HMOs). >HMOs provide prepaid health care >HMOs are a type of managed care plan working through a primary-care physician employed by the HMO |
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Term
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Definition
| the hospitalization portion of the program |
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Term
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Definition
| the supplementary health expense insurance portion for outpatient care, doctor office visits |
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Term
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Definition
| Optional prescription coverage plan. |
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Term
| Medicare Advantage Plans: |
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Definition
| offered by private insurers approved by Medicare and combine parts A and B into one plan. Typically costs are lower out-of-pocket costs. |
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Term
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Definition
| a government health care program funded jointly by the federal and state governments. Eligibility based on income and net worth. Beginning in 2014 households with incomes below 133% of the poverty threshold are eligible. |
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Term
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Definition
| Flexible spending arrangement/account FSA—amount paid by an employee is pretax. Use-it or lose-it feature |
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Term
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Definition
| Sold collectively to an entire group of people rather than to individuals, such as the group health care policies offered by employers. |
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Term
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Definition
| when you work for an employer that offers a group health plan you must wait until a specific time of year (October) to make changes to your coverages or switch among alternative plans (sometimes large employers offer more than one type of coverage). This time period it typically a month, though it may be less. Optional plans such as dental and vision are offered at this time. Open-enrollment requirements are often waived for family changes such as marriage, divorce, births, adoptions, etc. |
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Term
| Worker’s Comp (compensation) |
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Definition
| pays for illness and injury-related claims if the accident happens on the job. |
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Term
How much must you pay out of your own pocket?
Deductibles |
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Definition
| Clauses in health care plans that require you to pay an additional portion of health expenses annually before receiving reimbursement. |
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Term
How much must you pay out of your own pocket?
Copayment |
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Definition
| A variation of a deductible that requires you to pay a specific dollar amount each time then your insurance covers the rest |
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Term
How much must you pay out of your own pocket?
COBRA benefits |
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Definition
| Consolidated Omnibus Budget Reconciliation Act of 1985; if you are covered by a health plan by your employer and no longer work for that employer, COBRA allows you to remain as a member of the group health plan for as long as 18 months if you worked for an employer of more than 20 employers. Applies to you and any dependents covered under the plan; must pay full cost of coverage + 2% administrative fee. |
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Term
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Definition
| Disability covers income needs when the insured is unable to work. It is very likely that a young person needs no life insurance (no debts to cover upon death), but needs replacement income if sick or injured; therefore, disability policies may be much more valuable for young people than life policies. Typical policy provisions: |
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Definition
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Term
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Definition
| elimination period longer; benefits typically last longer |
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Term
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Definition
| An insurance contract that promises to pay a dollar benefit to a beneficiary upon the death of the insured person. |
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Term
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Definition
| issued to members of a group rather than to individuals. Most policies are written for employers with premiums paid in full by employers for employees. Rates are based on average of insurability of the group. The group member need not prove insurability…and the policy can usually be converted into an individual policy without proof of insurability. This is important for people whose health status may make individual policies impossible to obtain or they may be too expensive to be affordable. |
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Term
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Definition
| a person who receives live insurance proceeds, as stated in the policy. |
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Term
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Definition
| “Pure Protection” insurance provides coverage in case of death of the insured. Pays only if the insured dies with the time period (or term) that the policy covers. Typically it is better to have a guaranteed renewable policy. |
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Term
| Guaranteed renewal policy |
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Definition
| Policies that must be continued in force as long as the policyholder pays the required premium. |
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Term
| Cash-value insurance (also known as “permanent insurance”) |
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Definition
Pays benefits at death and includes a savings/investment element that can provide a reduced level of benefits to the policyholder prior to the death of the insured person.
It is a better financial decision to purchase term and invest the difference in premium into something that will produce returns over time. |
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Term
| Multiple-of-earnings approach |
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Definition
| estimates the amount of life insurance needed by multiplying your income by some number such as 5, 7, or 10. Assumes someone with $40,000 income would need between $200,000 to $400,000 of life insurance. This method factors only income replacement, not other associated costs. |
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Term
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Definition
| A superior method of calculating the amount of insurance needed that considers all of the factors that might potentially affect the level of need. Takes into account the following financial needs to be met upon your death: |
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Term
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Definition
| funeral (ranges from $1000 to $10,000), travel needs, food and lodging |
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Term
| Income-replacement needs: |
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Definition
| lost income includes any employer benefits and health insurance benefits |
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Term
| Readjustment period needs: |
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Definition
| may need to take extended time off work or obtain additional education so surviving spouse can provide additional income for family |
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Term
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Definition
| if coverage is sufficient (based on an assessment of needs to replace income) it will be unnecessary to cover specific debts (credit cards, installment loans, etc.). Typically sufficient coverage is needed to pay off a mortgage and additional for other debts to make financial management simpler. |
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Term
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Definition
| While many families have a college savings plan, the sudden loss of income makes it impossible to keep up with the plan. Sufficient insurance should be obtained to achieve the family goal of educating children. |
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Term
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Definition
| children with special health or emotional needs or a child who will need custodial care as an adult. Wealthy families may need additional insurance to cover federal estate taxes. |
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Term
| Insurance needs change over a person’s lifetime |
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Definition
| As one ages, dependent needs decline as children become adults and have careers of their own. |
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Term
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Definition
| covers physical damage to or destruction of property resulting from various acts such as fire or theft. |
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Term
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Definition
| protects you against financial losses to others for which you are responsible. |
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Term
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Definition
provides income while out of work.
Both are typically provided by employers |
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Term
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Definition
| covers potential financial losses due to sickness or accident. |
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Term
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Definition
| protects people from financial losses that occur with premature death. |
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Term
The Insurance Industry is based on Risk
Risk
Speculative Risk
Pure Risk |
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Definition
Risk—defined as the uncertainty of injury or loss
Speculative Risk—possibility exists for gain as well as loss (ex.: gambling)
Pure Risk—the threat of loss exists without the possibility of gain (accident, death, etc.) |
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Term
4 different ways of dealing with risks—
Avoid risks |
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Definition
| take a conservative approach to life. Avoid cigarettes…lung cancer. Don’t drive in blizzards, etc. |
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Term
4 different ways of dealing with risks—
Reduce risks |
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Definition
| Cannot eliminate risk, but you can reduce the probability of risk. Install smoke or CO2 detectors; burglar alarms, annual physical exams, air bags on cars, etc. |
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Term
4 different ways of dealing with risks—
Assume risks |
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Definition
| Self insurance…Emergency savings fund for disasters (if a fire burns your house down, you have sufficient funds to replace it without purchasing insurance) A first loss MAY be manageable…but a second loss soon after the first would probably not be. |
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Term
4 different ways of dealing with risks—
Transfer risks |
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Definition
| Insurance is the most common way of “transferring” risk. When you purchase insurance you substitute a small known loss (premiums) for the possibility of a larger economic loss. |
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Term
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Definition
| the amount of money you pay on a regular basis that covers the cost of purchasing the insurance |
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Term
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Definition
| The process of determining whom to insure and how much to charge for assuming the risk of insuring that person (or company) is called underwriting. |
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Term
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Definition
| A legally binding contract between the policyholder and the insurance company. It states all of the provisions of coverage including the amount and type of insurance, the amount and dates on which premiums are due, beneficiaries, and any restrictions to coverage. |
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Term
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Definition
—someone who sells insurance; how you can obtain insurance
Exclusive agent—just works for one company- AllState, State Farm
Independent agent—can give a variety of insurances; pick what suits your best needs
Direct seller—working with a company via telephone; won’t be working with a personal helper |
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Term
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Definition
| covers you if you are at fault, against negligence on your part (failure to put on breaks, etc.) |
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Term
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Definition
| the action a person who is mature will take to prevent a situation of negligence |
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Term
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Definition
| —where you hold a person financially responsible even if they were not directly at fault (Dog gets out and bites a kid’s leg) |
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Term
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Definition
| you are responsible as a parent and it extends your responsibility to your children (teenage son causes a wreck and does damage) |
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Term
| Umbrella liability coverage |
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Definition
| pay a little more and it will cover other things; mostly in the case to prevent suing; |
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Term
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Definition
Does standard homeowners policy cover a fire in the house? Yes. Wind? Yes. Lightning storms/tornado? Yes. Floods? No.
-Flood insurance comes from federal government
-Earthquake insurance comes from contacting the company to see if they can broaden what they cover to meet your specific needs; collectibles—rioters, floaters
50/100/10 |
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Term
| Typical coverage: 50/100/10…means: |
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Definition
50 ($50,000) = Death or bodily injury…maximum amount paid to one person in any one accident
100 ($100,000) = Maximum amount paid for death or bodily injury to two or more people in any one accident
10 ($10,000) = Limit in property damage coverage |
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Term
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Definition
| —for marketing a certain product; happens in the mind of the consumer (Maslow’s hierarchy); the more you have a branded item, it creates something called an affinity-need for association; needs vs. wants |
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Term
| Steps of consumer buying process: |
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Definition
Establish household goal
Recognize the problem or opportunity
Evaluation of alternatives
Purchase decision
Purchase act
Post purchase evaluation (cognitive dissonance) |
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Term
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Definition
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Term
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Definition
| defined as the uncertainty of injury or loss |
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Term
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Definition
| possibility exists for gain as well as loss (ex.: gambling) |
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Term
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Definition
| the threat of loss exists without the possibility of gain (accident, death, etc.) |
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