EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Question
Chapter 11, Problem 8QTD
Summary Introduction
To discuss: The reason why numerous people and organizations buy insurance policies.
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Which of the following is correct about the effect of a deductible with respect to the price of an insurance policy?
O A policy with a deductible will raise the premium. This will make the overall cost of insurance higher for policyholders who do
not have a claim, but lower for those with high claims
O A policy with a deductible will lower the premium. This will make the overall cost of insurance higher for policyholders who do
not have a claim, but lower for those with high claims
O A policy with a deductible will raise the premium. This will make the overall cost of insurance lower for policyholders who do
not have a claim, but higher for those with high claims
O A policy with a deductible will lower the premium. This will make the overal cost of insurance lower for policyholders who do
not have a claim, but higher for those with high claims
In the context of the health insurance and the life insurance, choose the sentence that IS NOT CORRECT: *
The deductible in a health insurance is an amount of money the insured must pay before benefits become payable by the insurance company.
When we buy a health insurance, we should make sure that we have enough insurance (the opportunity cost of not being adequately insured can be extremely high), but without wasting money by overinsuring
Group Health Insurance (most of them being employer sponsored) represents a small percentage (around 5%) of all health insurance issued by health and life insurance companies.
In a life insurance, a person purchases a policy by paying a premium and the insurance company promises to pay a sum of money at the time of the policyholder’s death to the designated beneficiary.
Both the stock market and and unemployment insurance provide volatile payments that depend on factors like the state of the economy or whether you lose your job. But there is the fundamental difference between the returns you receive from the stock market and the ones you receive from the unemployment insurance. Which is the difference? [Hint: think of the timing when you receive the big payment]
Chapter 11 Solutions
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Ch. 11 - Prob. 1QTDCh. 11 - Prob. 2QTDCh. 11 - Prob. 3QTDCh. 11 - Prob. 4QTDCh. 11 - Prob. 5QTDCh. 11 - Prob. 6QTDCh. 11 - Prob. 7QTDCh. 11 - Prob. 8QTDCh. 11 - Prob. 9QTDCh. 11 - Prob. 10QTD
Ch. 11 - Prob. 1PCh. 11 - Prob. 2PCh. 11 - Prob. 3PCh. 11 - Prob. 4PCh. 11 - Prob. 5PCh. 11 - Prob. 6PCh. 11 - Prob. 7PCh. 11 - Prob. 8PCh. 11 - Prob. 9PCh. 11 - Prob. 10PCh. 11 - Prob. 11PCh. 11 - Prob. 12PCh. 11 - Prob. 13PCh. 11 - Prob. 14PCh. 11 - Prob. 15PCh. 11 - Prob. 16PCh. 11 - Prob. 17PCh. 11 - Prob. 18PCh. 11 - Prob. 19PCh. 11 - Prob. 20PCh. 11 - Prob. 21PCh. 11 - Prob. 22PCh. 11 - Prob. 23PCh. 11 - Prob. 24PCh. 11 - Prob. 25PCh. 11 - Prob. 26PCh. 11 - Prob. 28PCh. 11 - Prob. 29P
Knowledge Booster
Similar questions
- For which of the following reasons might the US federal government offer insurance coverage? (Select all that apply) Because the value of the potential losses is too great for the private insurance industry Because the losses are too correlated for the private insurance industry. Because the US government is trying to earn a profit over the private insurance industry None of the above are truearrow_forward3. Why is it important for insurance companies to have a large pool of people paying premiums?arrow_forwardWith regards to group life insurance, which of the following statements are true? 1. An individual employee does not typically have the freedom to select a specific amount of insurance coverage, but rather the amount of coverage is typically a fixed dollar amount, or a variable amount in relationship to the employee's annual income.2. There is typically a change in the premium rate each year.3. Group insurance is normally a permanent type of insurance policy that provides long-term insurance protection for a significant number of Canadians.4. An employee who participates in a group life insurance plan normally has the opportunity to designate a beneficiary.5. Group life insurance plans typically do not apply age restrictions for participation in the plan.arrow_forward
- The probability distribution for damage claims paid by the Newton Automobile Insurance Company on collision insurance follows. Use the expected collision payment to determine the collision insurance premium that would enable the company to break even. The insurance company charges an annual rate of $520 for the collision coverage. What is the expected value of the collision policy for a policyholder? (Hint: It is the expected payments from the company minus the cost of coverage.) Why does the policyholder purchase a collision policy with this expected value?arrow_forwardWhy are people often willing to pay more for insurance than the expected valueof the coverage?arrow_forwardWith regard to group life insurance, which of the following statements are true? 1. An individual employee does not have the freedom to select a specific amount of insurance coverage, but rather the amount of coverage is typically a fixed dollar amount, or a variable amount in relationship to the employee's annual income. 2. There is typically a change in the premium rate each year. 3. Group insurance is normally a permanent type of insurance policy that provides long- term insurance protection for a significant number of Canadians. 4. An employee who participates in a group life insurance plan is unable to designate a beneficiary. Question 27 options: 1 and 2 1 and 4 2 and 3 3 and 4arrow_forward
- if the company is self-insured and the insurance plan says that it does not cover health routine and check up, does that mean that the company is still paying for that amount or not? for example: Plan A would charge a $350 premium with no deductible. Coverage is extended to pre-existing conditions, but to cover the non-deductible clause, health screening and routine check-ups are not covered. In this case, is the company only paying $350 or $350 PLUS the health screening?arrow_forward(Based on Appendix 12A) Whole-life insurance policies typically can be surrendered while the insured is stillalive in exchange for a determinable amount of money called the cash surrender value. When a company buysa life insurance policy on the life of a key officer to protect the company against the untimely loss of a valuableresource in the event the officer dies, how should the company account for the cash surrender value?arrow_forwardThere are some risks that you can transfer to an insurance company. There are also risks that you may want to retain. We all know the common risks that are transferred to insurance companies: auto, home, health, life. Detail a risk that could be transferred to an insurance company, but isn’t utilized as often as the most common ones mentioned. Explain the risk that can be transferred, when it’s used, and why it isn’t.arrow_forward
- Why would a life insurance company be concernedabout the financial stability of major corporations or thehealth of the housing market?arrow_forwardOne example of moral hazard in finance industry is "insurance policies often decreases incentive to take care of possession of its customers". How should people mitigate this problem?arrow_forward5. Some peode have high deductibles on their insurance policies in order to lower their mopthly-rates. Others have lower deductibles, but higher insurance rates. Under whät circumstances wouid one or the other be the better choice? C.arrow_forward
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