UGBA 96 Final Exam Study Guide 2023
spending on experiences versus things
more happiness for spending on experiences
spending on smaller things versus bigger things
better to spend on many smaller things you enjoy than fewer bigger things
spending versus time
find ways to get more time
pay now, consume later
spending on yourself versus others
more happiness for spending on others
hedonic treadmill
people return to relatively stable level of happiness, despite major positive or negative
events
3 ways people misjudge their purchases
1. people mispredict what will make them happy
2. how happy it will make them
3. how long the happiness will last
first financial line of defense when something goes wrong
use your emergency fund, NOT credit card
big emergencies (house burning down, car accident, etc.) will need insurance
health insurance
everyone should have it, employers often provide or can purchase on individual market
homeowner's insurance
-if you own a home, or mortgage, almost certainly already have homeowner's insurance
auto insurance
-legally obligated to buy auto insurance when you buy a car
-state mandated insurance minimums will not be enough if you cause a big accident,
they will also not pay you if you get hit by an uninsured driver
*If you need to save money, increase your deductible, do NOT lower your liability limit
life insurance
if someone else depends on your income, you need it
if not, then not necessary
buy a term policy, not a cash value policy
disability insurance
if you are working and not approaching retirement age, you need this
insurance for small stuff
do not insure small stuff like TV, fridge, etc.
recommend against buying extended warranties on consumer products
what losses are suited for insurance
-Large losses/expensive
-unlikely
-predictable in frequency
-not connected to each other
, correlated risks
-expensive events that cause losses that are related to each other
-insurance co's do not like to cover these
moral hazard
reduced incentive b/c of protection - people act more recklessly because they are
insured
adverse selection
people at greatest risk buy insurance, those who aren't are less likely to buy
term life insurance
-payment to beneficiary if you die, covers a specific length of time
-much cheaper and simpler than other life insurance
level term life insurance
fixed annual premium for a fixed number of years, when the time is up insurance ends
**renewing existing policy will make premiums MUCH higher b/c they will assume you
are not healthy enough to get a new policy, so best to just get a new health policy
cash policy life insurance
-combines investments and life insurance
-insured for whole life, payment when you die
-insurance companies make more money selling cash policy life insurance
when do you get a homeowner's insurance policy
when you get a mortage, they will require you to buy one, but do NOT let them pick a
policy for you, should always shop for a policy
how much should you insure on your home
you should insure for 100% of the rebuilding cost
do not cut corners on insurance amount
if you want to save on premiums, increase your deductible
liability insurance
covers medical payments to other people if they are injured in your home or on your
property
doesn't cover family members or housemates
how do homeowner's insurance policies specify which risks are covered?
name perils policy - less expensive, only covers things explicitly laid out in policy
all risks policy - covers everything except for things that are explicitly left out
do not cover earthquakes, floods, hurricanes
homeowner's insurance policy forms
HO3 - most basic
HO4 - most common
HO5 - most comprehensive/expensive
why buy renter's insurance?
-big financial load to replace all your belongings
-might be cheaper than expected
spending on experiences versus things
more happiness for spending on experiences
spending on smaller things versus bigger things
better to spend on many smaller things you enjoy than fewer bigger things
spending versus time
find ways to get more time
pay now, consume later
spending on yourself versus others
more happiness for spending on others
hedonic treadmill
people return to relatively stable level of happiness, despite major positive or negative
events
3 ways people misjudge their purchases
1. people mispredict what will make them happy
2. how happy it will make them
3. how long the happiness will last
first financial line of defense when something goes wrong
use your emergency fund, NOT credit card
big emergencies (house burning down, car accident, etc.) will need insurance
health insurance
everyone should have it, employers often provide or can purchase on individual market
homeowner's insurance
-if you own a home, or mortgage, almost certainly already have homeowner's insurance
auto insurance
-legally obligated to buy auto insurance when you buy a car
-state mandated insurance minimums will not be enough if you cause a big accident,
they will also not pay you if you get hit by an uninsured driver
*If you need to save money, increase your deductible, do NOT lower your liability limit
life insurance
if someone else depends on your income, you need it
if not, then not necessary
buy a term policy, not a cash value policy
disability insurance
if you are working and not approaching retirement age, you need this
insurance for small stuff
do not insure small stuff like TV, fridge, etc.
recommend against buying extended warranties on consumer products
what losses are suited for insurance
-Large losses/expensive
-unlikely
-predictable in frequency
-not connected to each other
, correlated risks
-expensive events that cause losses that are related to each other
-insurance co's do not like to cover these
moral hazard
reduced incentive b/c of protection - people act more recklessly because they are
insured
adverse selection
people at greatest risk buy insurance, those who aren't are less likely to buy
term life insurance
-payment to beneficiary if you die, covers a specific length of time
-much cheaper and simpler than other life insurance
level term life insurance
fixed annual premium for a fixed number of years, when the time is up insurance ends
**renewing existing policy will make premiums MUCH higher b/c they will assume you
are not healthy enough to get a new policy, so best to just get a new health policy
cash policy life insurance
-combines investments and life insurance
-insured for whole life, payment when you die
-insurance companies make more money selling cash policy life insurance
when do you get a homeowner's insurance policy
when you get a mortage, they will require you to buy one, but do NOT let them pick a
policy for you, should always shop for a policy
how much should you insure on your home
you should insure for 100% of the rebuilding cost
do not cut corners on insurance amount
if you want to save on premiums, increase your deductible
liability insurance
covers medical payments to other people if they are injured in your home or on your
property
doesn't cover family members or housemates
how do homeowner's insurance policies specify which risks are covered?
name perils policy - less expensive, only covers things explicitly laid out in policy
all risks policy - covers everything except for things that are explicitly left out
do not cover earthquakes, floods, hurricanes
homeowner's insurance policy forms
HO3 - most basic
HO4 - most common
HO5 - most comprehensive/expensive
why buy renter's insurance?
-big financial load to replace all your belongings
-might be cheaper than expected
