List some possible sources of personal loans
-Financial Institutions
-Family members or friends
What does the personal loan process involve?
the process involves filling out the application, negotiating the loan contract and interest rate
What does it mean if a loan is amortized?
to repay the original amount loaned out through a series of equal payments. When a loan is paid in this manor, it is amortized
What information must borrowers supply to lenders in the loan application process?
You have to provide information from your
-personal balance sheet
-cash flow statement
What information is included in a loan contract?
-amount of the loan
-interest rate-
-loan repayment schedule
-maturity (life of the loan)
-collateral (assets of a borrower that back a secured loan in the event that the borrower defaults)
What is a collateral? What is the relationship between collateral and interest rates?
assets of the borrower. It backs the loan in the event that the borrower defaults. A loan backed by collateral is called a secure loan. You will get lower interest rates on secured loans because the lender has less to lose in the event that the loan is no
How does the maturity of a loan affect monthly payments?
a longer maturity for the loan, the lower the monthly payments. Select one that is as short as possible
Explain the difference between a 10% rate charged on a payday loan and a 10% rate charged by a bank on a personal loan
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What are you responsibilities in cosigning a loan?
responsible for any unpaid balance
What is the purpose of the annual percentage rate measurement?
a rate that measures the finance expenses (including interest and other expenses) on a loan annually. Per year, what you will pay on your loan. "How much will this loan cost me?
What is simple interest? What information is needed to compute it?
interest on a loan computed as a percentage of the existing loan amount. It is measured by using the principal, the interest rate applied to the principal and the loans time to maturity (in years)
How are payments calculated under the add-on interest method?
a method of determining the monthly payment on a loan. Involves calculating interest that must be paid on the loan amount, adding together the interest and loan principal, and dividing by the number of payments. Example on pg. 240
Why are loan payments under the simple interest method usually lower than loan payments under the add-on interest method?
the interest payment is not reduced over time as you pay off the loa
List the steps in buying a car. What financial criteria should be considered?
how does this affect my personal budget
What should be the first step in financing a purchase of a car? What two facts will have the largest impact on the size of your monthly payments?
the down payment
Advantages and disadvantages of leasing a car
advantage of leasing a car: you do not need a substantial down payment, do not need to worry about finding a buyer for the car
disadvantage: you have no equity investment in it because you do not own the car, even if the car still has value
Who extends a student loan?
-the federal government
- financial institutions
equity of a home
the market value of the home-debt owed on the home
What is home equity?
a loan where the equity in a home serves as collateral for the loan
Discuss the two ways financial institutions might define equity to set credit limits. What happens if you default on a home equity loan?
-define the market value of your equity as the market value of your home
- the mortgage balance (amount still owed on the home) pg. 251
If you default on the loan, the lender can claim your home, use a portion of the proceeds to pay off the mortgage and u
How are interest rates calculated from home equity loans? Why do borrowers prefer home equity loans to other loans?
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How can borrowers enjoy tax savings by using a home equity loan? How are these tax savings computed?
amount of interest paid X marginal tax rate
Why might a weak economy cause your credit limit on your home equity loan to decline? Why may a strong economy cause your credit limit on your home equity loan to rise?
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What is your first task when considering buying a home? How can a real estate broker help you?
how much you want to spend/ the down payment
What are the two financial components you must consider before purchasing a home?
down payment, monthly mortgage payments
What should you consider when determining an affordable down payment and monthly mortgage payments?
your cash flow statement
List the criteria you should use when selecting a home
-price
-convenient location
-maintenance
-school system
-insurance
-taxes
-homeowner association
-resale value
-personal preference
Why do insurance costs and taxes vary among homes?
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What is the main factor in determining a homes resale value? How can you predict a homes resale value? Who pays commissions when a home is sold?
The location. You can evaluate todays resale value of similar homes in that location that were sold years ago. You pay the commission when a home is sold
Once you have reduced your list of three of four homes down to to one home, what is your next step? Should you offer the price the seller is asking? Describe how you would conduct a market analysis of the home.
conduct a market analysis, feel free to negotiate. Market analysis is an estimate of the price of a home based on the prices of similar homes in the area. You would make an analysis by multiplying the average price per square foot and the square foot of t
Why does the value of a home depend on the demand for homes? What factors influence the demand for homes?
as the demand for homes increases, the prices of homes rise.
How do lenders protect their interest in a home? Describe two government backed home loan programs.
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What are closing costs? List and briefly describe the different closing costs you might incur when applying for a mortgage.
when a borrower incurs various fees in the mortgage loan application process
-points: a fee charged by the lender when a mortgage loan is provided; stated as a percentage of the mortgage loan amount
-loan application fee: when applying for a mortgage loan
Describe the characteristics of a fixed-rate mortgage. Why do certain homeowners prefer a fixed-rate mortgage to an adjustable-rate mortgage?
a mortgage in which a fixed interest rate is specified until maturity. It is a fixed interest rate that is constant for the life of the mortgage
they prefer a fixed rate mortgage because their mortgage payments will be sheltered from the rising market int
What is amortization table? What does each mortgage payment represent?
- this schedule discloses the monthly payment that you will make, based on a specific mortgage amount, a fixed interest rate level and a maturity. Each payment represents a partial equity payment that pays a portion of the principal of the loan and an int
List the three things that determine the amount of the monthly mortgage payment. Explain how each affects the payment.
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Discuss the characteristics of an adjustable rate mortgage. What influences your choice of a fixed or adjustable rate mortgage?
adjustable-rate mortgage is a mortgage where the interest owed changes in response to movements in a specific market determined interest rate
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What are the costs of renting a home?
the monthly rent payments
Describe some of the costs of buying a home. Are there potential tax savings associated with buying a home?
the down payment and monthly mortgage payment
Descrive the features of graduated payment and balloon payment mortgages.
graduated payment mortgage- a mortgage where the payments are law in the early years and then rise to a higher level over time
balloon payment mortgage- a mortgage where the monthly payments are relatively low, but one large payment is required after a sp
What is mortgage refinancing? Are there any disadvantages to refinancing?
paying off an existing mortgage with a new mortgage that has a lower interest rate. One disadvantage is that you will incur closing costs again
Explain how a weak economy affects the value of homes
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Explain how stronger economic conditions affect the values of homes.
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What is the purpose of insurance? What is meant by the term liability? How can individuals benefit from insurance?
maintain your existing level of wealth by protecting you against financial losses or liability as a result of unexpected events.
liability is the amount that you may be required to pay someone for damages that you caused
You have a peace of mind knowing y
What is risk? What is risk management? How does insurance fit unto risk management?
Risk is the exposure to events or perils that can cause a financial loss. Risk management is the decision about whether and how to protect against the risk. Get insured according to you risk
What is the responsibility of the insurance company that sells you a policy? What is the relationship between insurance company claims and premiums paid by policyholders?
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What is the role of insurance underwriters? What is the role of insurance agents? Define the two different types of insurance agents.
underwriters: calculate the risk of specific insurance policies, decide what policies to offer and what premiums to change
insurance agents: recommends insurance policies for customers
two different types of insurance agents: captive(exclusive), work for
Describe the two components of liability coverage in an auto insurance policy
insurance policy: contract between an insurance company and the policy holder
auto insurance policy: specifies the coverage provided by the insurance company for a particular individual and vehicle
What do policy limits of 20/50/25 mean? Do you think the minimum amounts of liability insurance required by your state are suitable for all drivers? Explain your answer.
Limited to $20,000 per person injured in the accident, $50,000 for all people combined and $25,000 to cover cost of damage of vehicle or property.
Describe the two types of financial responsibility laws most states have. Are these laws always effective?
- requires that drivers show proof of auto insurance when they register the car in order to receive their license plates
-requires that drivers show proof of their auto insurance when they are in a accident
How does medical payments coverage under an auto insurance policy work? Why is medical payments coverage valuable even if you have a good health insurance plan?
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Describe collision and comprehensive coverage. Is this type of coverage required by most states? Who may require this type of coverage?
insure against damage to your car.
Collision insurance insures you against cost of damage to your car resulting from an accident in which you are at fault.
comprehensive coverage insures you against damage to your car that results from floods, theft, hail
List and briefly discuss factors that will affect your auto insurance premium
-characteristics of your car
-value of your car
-repair record of your car
What is a homeowners insurance? How are the premiums normally paid?
provides insurance in the event of property damage, theft, or personal liability relating to your home. Commonly paid yearly or may be included in your mortgage payment
List and briefly desire the four packages of homeowners insurance that focus on insurance for the home.
HO-1
HO-2
HO-3
HO-5
HO-8
pg.325
What is a "cash value" homeowners policy? What is a "replacement cost" homeowners policy?
cash value policy: pays you for the value of the damaged property after considering its depreciation
replacement cost policy: pays you for the actual cost of replacing the damaged property
Is personal property typically insured under a homeowners insurance policy? If so, are there limits to the coverage of personal property? What is a home inventory?
Yes, Yes
home inventory: contains detailed information about your personal property that can be used when filing a claim
What is a personal property floater? What is the difference between scheduled and unscheduled floaters?
a extension of the home-owners insurance policy that allows you to itemize your valuables
Factors that affect homeowners insurance premiums
- value of insured home
-deductible
-location
-degree of protection
-discounts
What are some steps you could take to reduce your home-owners insurance premium?
- increase your deductible
-improve protection
- use one insurer of all types of insurance
-stay with the same insurance company
- shop around
Describe the steps you would take to file a claim on your homeowners insurance.
-present your home inventory to the adjuster
coverage A
liability coverage
coverage B
medical payments coverage
coverage C
uninsured or underinsured coverage
coverage D
comprehensive and collision coverage
How is renters insurance different from homeowners insurance? Who should consider purchasing renter insurance?
renters insurance protects you possessions within a house, condo or apartment that you are renting. It does not cover the actual structure of the house. Consider if you are renting
What is the purpose of an umbrella personal liability policy? Who might need one?
it is a supplement to auto and homeowners insurance that provides additional personal liability coverage. It is great if you have multiple assets that need to be covered beyond a home and car
How can you determine the financial strength of an insurance company? Why is this important to you as a consumer?
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How do individuals benefit from having health insurance? Why has health insurance received a lot of attention recently?
It covers health care expenses.
What is private health insurance? List types of private health insurance coverage.
health insurance that can be purchased from private insurance companies to provide coverage for health care expenses
Who offers health insurance? Do employers?
private health insurance companies or your employer
Compare and contrast private health care fee for service plans and managed health care plans
fee for service plan is health insurance that reimburses individuals for part or all of the expenses they incur from health care providers; individuals are free to decide whether to seek care from a primary care physician or a specialist
managed health ca
Describe how an HMO works. What are the advantages and disadvantages of this type of health care coverage?
a health maintenance organization is a health insurance plan that covers health care services approved by doctors. The primary care physician provides general health services and refers patents to a specialist necessary.
One advantage is that they offer h
What questions should you ask when considering an HMO or PPO?
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What is a preferred provider organization PPO? How does it operate?
A PPO (preferred provider organization) is a health insurance plan that allows individuals to select a health care provider and covers most of the fees for services; a referral from a doctor is not required to visit a specialist.
Compare and contrast the discount on charge arrangement and the per diem arrangement associated with PPO's.
discount on charge arrangement is an arrangement in which the preferred provider organization (PPO) pays a specific percentage of the health care providers charges
per diem arrangement is an arrangement in which the preferred provider organization (PPO) p
Two federal regulations intended to ensure that individuals can maintain continuous health care coverage if their employer status changes.
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What is a flexible spending account? Why do some individuals allocate a minimal amount to this account?
a flexible spending account is an account established by the employer for the employee to use pretax income to pay for medical exspenses.
Individuals put a minimal amount to this account because you have to use all the money in the account during that yea
What is Medicare? Describe parts A and B.
Medicare is a program that provides health insurance to individuals who are 65 or older and qualify for social security benefits or who are disabled.
Part A consists of hospital insurance and us used to cover expenses associated with impatient care in hos
Medicare Prescription Act
allows coverage for senior citizens and people with disabilities. Allows people to establish a health savings account.
What is a Medigap insurance?
insurance provided by private insurance companies to cover medical expenses that are not covered by Medicare.
What is Medicaid? How do you qualify?
a federal program that provides health care to aged, blind, disabled a needy families with dependent children. You have to meet federal guidelines to qualify.
What is the purpose of long-term care insurance? What factors influence long-term care insurance premiums? What factors should be considered when purchasing long-term care insurance?
it is insurance that covers expenses associated with long-term health conditions that cause individuals to need help with everyday task
factors that affect long-term care insurance premiums are provisions of policy, age and health conditions
consider that
What are some other types of health insurance that might be offered by an employer?
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What is the purpose of disability income insurance? Why might younger individuals consider purchasing disability insurance?
it is insurance that provides income to policyholders in the event that they become disabled
younger should consider purchasing because it provides peace of mind and the premiums are low
Sources of disability income insurance
individual disability insurance-
employer disability insurance
insurance from social security
provisions of disability of income insurance
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significant features of the Affordable Care Act.
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What is the purpose of life insurance? Do you think everyone needs life insurance?
life insurance provides a payment to a specified beneficiary when the policyholder dies. Provides $ for when you die
What is term insurance? What factors determine the premium for term insurance? What is decreasing-term insurance?
term insurance is life insurance that is provided over a specified time period and does not build a cash value, meaning that the policy does not serve as a investment. Intended to provide insurance when someone dies.
decreasing term insurance in which the
What is mortgage life insurance? Is mortgage life insurance a good buy? Why or why not?
mortgage life insurance is life insurance that pays off a mortgage in the vent of the policy holders death.
No, it is not really a good buy because people can achieve the same goal and save a lot more money by purchasing a term insurance policy that provi
Briefly describe some of the term insurance options.
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What is whole life insurance? What benefit does it provide that term life insurance does not?
Whole life insurance (permanent insurance) is life insurance that continues to provide insurance as long as premiums are paid; not only provides benefits to the beneficiary but also has a cash value.
-whole life has higher premiums
-whole life accumulates
Describe the nonforfeiture and loan clauses of whole life insurance policies.
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Why is the premium paid for whole life higher than the prieumum for term life? What alternative approach to purchasing life insurance might provide the same benefits as whole life?
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What is universal life insurance? How does it differ from term life and whole life?
life insurance that provides insurance over a specified term and accumulates savings for the policyholder over the time
different because it has a savings
What is variable life insurance? What are the advantages and disadvantages of variable life policies?
life insurance that provides insurance over a specified term and allows policyholders to invest residual funds; after the premium on the term portion is paid in various types of investments. High fees
Describe the income method to determine the amount of life insurance needed. What is the disadvantage of this method?
a method that determines how much life insurance is need based on the policyholders annual income. However, it does not consider your age and your family circumstances (including your annual household expenses)
Discuss why life insurance needs should not be based on a familys dream for the future.
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Describe the budget method (needs method) to determine the amount of life insurance needed. What elements must be considered in making this calculation?
a method that determines how much life insurance is needed based on the households expected future expenses. It estimates the amount of future funds that will be needed, so that the insurance coverage will be adequate. When determining needs look at
-annu
List and briefly discuss the factors that affect an individuals life insurance premium.
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What are settlement options? Which option should you choose?
the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies. You select the one that is most appropriate for your beneficiaries
What is a lump-sum settlement? What kind of beneficiary would benefit the most from this option?
a single payment of all the benefits owed to a beneficiary under a life insurance policy. Someone who is disciplined would benefit from this
What is an installment payments settlement? When would an insured individual choose this option?
the payment of life insurance benefits owed to a beneficiary as a stream of equal payments over a specified numbers of years. They would choose this option when they don't want to just give a lump some annually, but spreading out the payment so that the b
What is the interest payments option? How does it differ from the installment payment options?
a method of paying life insurance benefits in which the company retains the amount owed for a specified number of years and pays interest to the benficiary.
it does not do equal payments of a certain number of years but instead pay interest