21 free flashcards covering all 5 units. Study key concepts, terms, and exam-relevant topics.
What is the primary purpose of insurance in risk management?
To transfer financial risk from the insured to the insurer in exchange for payment of a premium.
Understanding this concept clarifies how insurance functions as a risk management tool, a core exam theme.
Define the term 'premium' in insurance contracts.
A premium is the periodic payment made by the policyholder to the insurer, covering the insurer's assumed risk.
Knowing what a premium is helps answer exam questions on policy structure and financial responsibility.
Compare term life insurance and whole life insurance.
Term life covers a specified period and pays a death benefit if the insured dies; whole life offers lifelong coverage plus a cash‑value component growing at a guaranteed rate.
Exam questions often ask for differences between key life insurance types, making this comparison essential.
What is underwriter risk in the insurance context?
Underwriter risk refers to the risk of loss that the insurance company accepts based on the characteristics and health of the insured.
Understanding underwriting helps explain how insurers assess and price risk, which appears in exam scenarios.
Explain how an actuarial table is used in life insurance pricing.
Actuarial tables provide mortality rates for various age groups, allowing actuaries to calculate expected payouts and set appropriate premiums.
Exam focuses on the actuarial role; knowing tables links mortality data to premium decisions.
What are the tax consequences of withdrawing money from a traditional IRA during retirement?
Withdrawals are taxed as ordinary income, subject to standard income tax rates. Early withdrawal before age 59½ may incur a 10% penalty unless an exception applies.
Understanding tax treatment of IRA withdrawals is essential for optimizing retirement income and planning tax liabilities.
Compare a defined‑benefit pension plan with a defined‑contribution plan.
Defined‑benefit plans guarantee a preset payout, often formula‑based, regardless of contributions. Defined‑contribution plans base payouts on employee and employer contributions plus investment performance, leaving retirement value uncertain.
Exam questions test recognition of plan risk allocations and employee benefits under each type.
How does a living trust differ from a simple will in estate planning?
A living trust transfers assets into a trust during life, bypassing probate and offering privacy. A will directs asset distribution after death but requires probate and is public.
Knowing the distinct probate implications and privacy benefits helps answer scenarios about estate planning strategies.
Explain how a 401(k) employer match works and its impact on your retirement savings.
Employer matches typically match a percentage of employee contributions up to a set limit (e.g., 3‑5% of salary). This boosts your savings without additional cost, accelerating retirement accumulation.
Assessing match formulas is key to evaluating employer‑sponsored retirement plans and their value to employees.
Why is asset allocation important in retirement planning?
Asset allocation balances risk and return by diversifying investments across equity, bonds, and cash equivalents, adapting to an individual’s time horizon and risk tolerance for optimal portfolio growth.
Examiners emphasize the role of allocation strategies in meeting retirement income goals while managing risk.
What is Financial Planning?
Process of managing finances to achieve goals
Understanding financial planning is crucial for the exam as it sets the foundation for all other concepts.
Opportunity Cost definition
Value of next best alternative
Recognizing opportunity cost helps in making informed financial decisions, a key aspect of the DSST Personal Finance exam.
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