Deck 13: Taxes and Insurance

Question 1

How much more than the amount needed had the company set aside to pay these expenses?
_____

Answer 1

The total amount set aside is , and the total amount needed is .
Find the amount by which the amount company set side is more than the amount company needed, .
Therefore, the amount is .

Question 2

Find the assessed value for each of the following pieces of property. (See Example 1.)

Answer 2

Find the assessed value through multiplying the fair market value by the assessment rate, Therefore, the assessed value is .

Question 3

Explain the difference between fair market value, assessed value, and property tax. (See Objectives 1, 2, and 3.)
Define fair market value and assessed value. A local tax assessor estimates the market value of all the land and buildings in an area. The fair market value is the price at which a property can reasonably be expected to be sold. The fair market value could be used to find the amount of the property tax. However, many tax authorities first find what is called the assessed value, by multiplying the fair market value by a percent called the assessment rate. The assessed value is then used to calculate the property tax. In fact, the only purpose of the assessed value is for use in finding the property tax. The assessment rate varies widely from 25, in some states to 100, in others.

O BJ ECT IV E 2 Find the tax rate. A taxing authority such as a city or community college district first estimates the revenue needed and then finds the property-tax rate needed to generate that amount of tax as follows.
Finding the Property-Tax Rate
Step 1 Identify the amount of money needed.
Step 2 Find the total fair market value of all real properties in the tax district.
Step 3 Find the total assessed value of all real properties in the tax district.
Step 4

O BJ ECT IV E 3 Find the property tax. The tax rate is applied to the assessed value to find the property tax due as follows.

Answer 3

The fair market value is the price of a property on the market. The assessed value is obtained through multiplying the fair market value by the assessment rate. The property tax is obtained through multiplying the assessed value by the tax rate. That is, , and .
Consider an example.
Suppose that the fair market value is , the assessment rate is , and the tax rate is .
Then, And

Question 4

Find the adjusted gross income for the following people. (See Example.)
Finding Adjusted Gross Income (AGI)
As an assistant manager at The Doll House, Jennifer Crum earned $24,738.41 last year and $1624.01 in interest from her credit union (see her W-2 and 1099 forms). She had $1500 in regular IRA contributions. Find her adjusted gross income.
SOLUTION

Question 5

Find the tax refund or tax due for the following people. The letter following the names indicates the marital status. Assume a 52-week year and that married people are filing jointly. (See Example.)
Determining Tax Due or Refund
At age 29, Jim Clark works as a petroleum engineer for ExxonMobil, where he helps design deep, complex wells being drilled offshore Africa. His wife stays at home and takes care of their toddler. His salary last year was $123,500, and $1210 was withheld from each monthly paycheck. They file a joint return and use the standard deduction. Find the amount of income tax due to the IRS or the amount overpaid, as applicable.
SOLUTION

The Clarks must send an additional $2930 in income taxes to the IRS with their income-tax return. Depending on the state in which they live, they may also owe some state income taxes. Although a few states do not have income taxes, most states do have them.

Question 6

Find the total annual premium for each of the following. Use the table on page 577. (See Example 1.)

Question 7

Find the annual fire insurance premium in each of the following application problems. Use the table on page 577.
FIRE INSURANCE PREMIUM Martha Spencer, owner of The Doll House, owns a class-B building with a replacement cost of $165,400. Contents are valued at $128,000. The territorial rating is 3.

Question 8

Find the annual premium for the following. (See Examples 1-5.)

Question 9

Solve the following application problems.
INSURANCE PAYMENT Bob Armstrong lost control of his car and crashed into another car. He had 15/30 liability limits, $10,000 property damage limits, and collision coverage with a $100 deductible. Damage to Armstrong's car was $2980; the other car, with a value of $22,800, was totaled. The results of a lawsuit awarded $75,000 and $45,000, respectively, in damages for personal injury to the two people in the other car. Find the amount that the insurance company will pay for (a) repairing Armstrong's car, _____ (b) repairing the other car, _____ and (c) personal injury damages. _____ (d) How much must Armstrong pay beyond his insurance coverage?

Question 10

Solve the following application problems.
WHOLE LIFE INSURANCE Jessica Smith buys a whole life policy with a face value of $100,000 at age 35. Find the annual premium.
_____

Question 11

MATTEL INC. - TAXES AND INSURANCE
www.mattel.com
Facts:
• 1945: Founded by Elliot and Ruth Handler
• 1959: Barbie introduced
• 2004: More than one billion Barbies sold
• 2011: Sales over $5 billion
Antique dolls representing adults from the 17th and 18th centuries have been found, but they are very rare. Individual craftsmen in England made most of these earliest dolls. The craftsmen carved the dolls of wood, painted their features, and also designed the costumes for the dolls. Some of these earliest dolls are valued at more than $40,000.
The Barbie doll is the most popular fashion doll ever created. If all the Barbie dolls that have been sold since 1959 were placed head-to-toe, the dolls would circle the earth more than seven times. The most popular Barbie ever sold was the Totally Hair Barbie, which was introduced in 1992. With hair from the top of her head to her toes, more than 10 million of these dolls were sold, resulting in revenue of $100 million. With annual retail sales at an estimated $3.6 billion, Barbie is the #1 brand of doll for girls.
Martha Spencer started The Doll House and sells dolls around the world through her Web site. Her business has grown over the years, but she still carefully watches costs. She knows that she must control costs to be successful. Help her figure out some of these costs.
Spencer is a 35-year old woman who is divorced and has two children. She decides to purchase $500,000 of life insurance to protect her children. Find the annual cost of 10-year level term.
_____

Question 12

Find the assessed value for the following pieces of property. (See Example.)
Finding the Assessed Valuation of Property
Find the assessed value for the following pieces of property owned by Martha Spencer.
(a) Home: fair market value $185,300; assessment rate 35%
(b) Business property: fair market value $328,500; assessment rate 35%
(c) Commercial lot located in a different state: fair market value $123,800; assessment rate 60%
SOLUTION
Multiply the fair market value by the assessment rate.
(a) $185,300 ×.35 = $64,855
(b) $328,500 ×.35 = $114,975
(c) $123,800 ×.60 = $74,280

Question 13

Find the property tax for the following. (See Example 3.)

Question 14

Find the adjusted gross income for the following people. (See Example.)
Finding Adjusted Gross Income (AGI)
As an assistant manager at The Doll House, Jennifer Crum earned $24,738.41 last year and $1624.01 in interest from her credit union (see her W-2 and 1099 forms). She had $1500 in regular IRA contributions. Find her adjusted gross income.
SOLUTION

Question 15

Find the tax refund or tax due for the following people. The letter following the names indicates the marital status. Assume a 52-week year and that married people are filing jointly. (See Example.)
Determining Tax Due or Refund
At age 29, Jim Clark works as a petroleum engineer for ExxonMobil, where he helps design deep, complex wells being drilled offshore Africa. His wife stays at home and takes care of their toddler. His salary last year was $123,500, and $1210 was withheld from each monthly paycheck. They file a joint return and use the standard deduction. Find the amount of income tax due to the IRS or the amount overpaid, as applicable.
SOLUTION

The Clarks must send an additional $2930 in income taxes to the IRS with their income-tax return. Depending on the state in which they live, they may also owe some state income taxes. Although a few states do not have income taxes, most states do have them.

Question 16

Find the total annual premium fo the following. Use the table on page. (See Example.)
Finding the Annual Fire Insurance Premium
The Doll House is in a building rated class C. It is in territory 4. Find the annual premium if th replacement cost of the building is $640,000 and the contents are valued at $186,500.
SOLUTION
Building:

Question 17

Find the annual fire insurance premium in the following application problems. Use the table on page.
AIRPLANE HANGAR Valley Crop Dusting owns an airplane hanger located in a class-B area. It has a replacement cost of $107,500. Contents are worth $39,800. The territorial rating is 2.
_____

Question 18

Find the annual premium for the following. (See Examples.)
Finding the Life Insurance Premium
Martha Spencer became the primary source of income for her family at age 35 after her divorce. At that time, she decided that she needed $250,000 in life insurance to pay off the mortgage on her home, to repay some loans at her business, and to provide for her children. Find her annual premium for (a) a 10-year level premium term policy, (b) a whole life policy, (c) a universal life policy, and (d) a 20-pay life plan.
CASE IN POINT
SOLUTION
First, divide the desired amount of life insurance by $1000 to find the number of thousands.
$250,000 ÷+ $1000 = 250 thousands
Quick TIP
Use the actual age of a man when using the table of premiums. However, subtract 5 from the age of a woman before using the table.
Since Spencer is a woman, subtract 5 from her actual age before using the table (35 - 5 = 30). Look in the table at age 30 for the rates for each type of insurance.
Spencer wanted to buy universal life because of the savings feature, which would help her save for retirement. However, she purchased the level premium term instead, since her income was limited and the level term policy was much cheaper.
Using a Premium Factor
The annual insurance premium on a $200,000 10-year level premium term life policy for Jane Rodriguez is $378. Use the premium factors table to find the amount of premium and the total annual cost if she pays (a) semiannually, (b) quarterly, or (c) monthly.
SOLUTION
Pricing Life Insurance

Shauna Jones has decided to buy $100,000 in life insurance to make sure that her kids will have funds if something happens to her. Jones is 28 and in good health. Find the monthly premium for (a) 10-year level premium term and (b) universal life.
SOLUTION
(a) 10-year level premium term:

(b) Universal life:

Question 19

Solve the following application problems.
Explain why insurance companies charge a higher premium for auto insurance sold to a youthful operator. Do you think this is fair? (See Objective.)
Apply youthful-operator factors. Sometimes young people think they are being charged far too much for automobile insurance. Insurance companies base their rates on probabilities calculated from statistical data. The graph on the next page shows that drivers under 25 are far more likely to be involved in a fatal automobile accident than drivers 25 or older. Since these younger drivers are riskier to cover, insurance companies charge higher rates for youthful compared to adult drivers. The age at which a youth becomes an adult varies from company to company. Generally, drivers under 25 are considered youthful drivers, and drivers 25 or older are considered adults.

The following table shows typical youthful-operator factors based on age and on whether or not the operator has taken driver's training. You can see that the factors are much higher for youthful operators who have not taken driver's training. The steps to apply these factors follow.
1. Determine the total premium for all coverages desired.
2. Multiply the total premium by the youthful-operator factor from the table.

Question 20

Solve the following application problems.
KEY EMPLOYEE INSURANCE Martha Spencer owns the Doll House and has a 35-year-old key male employee whom she wants to insure for $50,000. Find the annual premium (a) for 10-year level term _____ and (b) for whole life. _____

Question 21

Find the tax owed in the following problems.
Bradkin's Toggery owns property with a fair market value of $209,200. Property in the area is assessed at 30% of fair market value with a tax rate of 3.65%. Find the annual tax.
_____

Question 22

Find the assessed value for the following pieces of property. (See Example.)
Finding the Assessed Valuation of Property
Find the assessed value for the following pieces of property owned by Martha Spencer.
(a) Home: fair market value $185,300; assessment rate 35%
(b) Business property: fair market value $328,500; assessment rate 35%
(c) Commercial lot located in a different state: fair market value $123,800; assessment rate 60%
SOLUTION
Multiply the fair market value by the assessment rate.
(a) $185,300 ×.35 = $64,855
(b) $328,500 ×.35 = $114,975
(c) $123,800 ×.60 = $74,280

Question 23

Find the property tax for the following. (See Example.)
Finding the Property Tax
Find the taxes on each of the following pieces of property. Assessed values and tax rates are given.
(a) $58,975; 8.4%
(b) $875,400; $7.82 per $100
(c) $129,600; $64.21 per $1000
(d) $221,750; 94 mills
SOLUTION
Multiply the tax rate by the assessed value.
(a) 8.4% =.084
Tax = Tax rate × Assessed value
Tax =.084 × $58,975 = $4953.90
(b) $875,400 = 8754 hundreds
Tax = $7.82 × 8754 = $68,456.28
(c) $129,600 = 129.6 thousands
Tax = $64.21 × 129.6 = $8321.62
(d) 94 mills =.094
Tax =.094 × $221,750 = $20,844.50

Question 24

Find the adjusted gross income for the following people. (See Example.)
Finding Adjusted Gross Income (AGI)
As an assistant manager at The Doll House, Jennifer Crum earned $24,738.41 last year and $1624.01 in interest from her credit union (see her W-2 and 1099 forms). She had $1500 in regular IRA contributions. Find her adjusted gross income.
SOLUTION

Question 25

Find the tax refund or tax due for the following people. The letter following the names indicates the marital status. Assume a 52-week year and that married people are filing jointly. (See Example.)
Determining Tax Due or Refund
At age 29, Jim Clark works as a petroleum engineer for ExxonMobil, where he helps design deep, complex wells being drilled offshore Africa. His wife stays at home and takes care of their toddler. His salary last year was $123,500, and $1210 was withheld from each monthly paycheck. They file a joint return and use the standard deduction. Find the amount of income tax due to the IRS or the amount overpaid, as applicable.
SOLUTION

The Clarks must send an additional $2930 in income taxes to the IRS with their income-tax return. Depending on the state in which they live, they may also owe some state income taxes. Although a few states do not have income taxes, most states do have them.

Question 26

Find the total annual premium fo the following. Use the table on page. (See Example.)
Finding the Annual Fire Insurance Premium
The Doll House is in a building rated class C. It is in territory 4. Find the annual premium if th replacement cost of the building is $640,000 and the contents are valued at $186,500.
SOLUTION
Building:

Question 27

Find the annual fire insurance premium in the following application problems. Use the table on page.
INDUSTRIAL BUILDING INSURANCE London's Dredging Equipment is in a class-C building with a territorial rating of 4. The building has a replacement cost of $305,000 and the contents are worth $682,000.
_____

Question 28

Find the annual premium for the following. (See Examples.)
Finding the Life Insurance Premium
Martha Spencer became the primary source of income for her family at age 35 after her divorce. At that time, she decided that she needed $250,000 in life insurance to pay off the mortgage on her home, to repay some loans at her business, and to provide for her children. Find her annual premium for (a) a 10-year level premium term policy, (b) a whole life policy, (c) a universal life policy, and (d) a 20-pay life plan.
CASE IN POINT
SOLUTION
First, divide the desired amount of life insurance by $1000 to find the number of thousands.
$250,000 ÷+ $1000 = 250 thousands
Quick TIP
Use the actual age of a man when using the table of premiums. However, subtract 5 from the age of a woman before using the table.
Since Spencer is a woman, subtract 5 from her actual age before using the table (35 - 5 = 30). Look in the table at age 30 for the rates for each type of insurance.
Spencer wanted to buy universal life because of the savings feature, which would help her save for retirement. However, she purchased the level premium term instead, since her income was limited and the level term policy was much cheaper.
Using a Premium Factor
The annual insurance premium on a $200,000 10-year level premium term life policy for Jane Rodriguez is $378. Use the premium factors table to find the amount of premium and the total annual cost if she pays (a) semiannually, (b) quarterly, or (c) monthly.
SOLUTION
Pricing Life Insurance

Shauna Jones has decided to buy $100,000 in life insurance to make sure that her kids will have funds if something happens to her. Jones is 28 and in good health. Find the monthly premium for (a) 10-year level premium term and (b) universal life.
SOLUTION
(a) 10-year level premium term:

(b) Universal life:

Question 29

Solve the following application problems.
Property damage pays for damage caused by you to the property of others. Since the average cost of a new car today is over $20,000, what amount of property damage coverage would you recommend to a friend who owns her own business?

Question 30

Solve the following application problems.
20-PAY LIFE POLICY Luan Lee buys a $100,000, 20-pay life policy at age 45. Her son Bryan is the beneficiary and will collect the face value of the policy. (a) Find the annual premium. _____ (b) How much will Bryan get if his mother dies after making payments for 12 years? _____

Question 31

MATTEL INC. - TAXES AND INSURANCE
www.mattel.com
Facts:
• 1945: Founded by Elliot and Ruth Handler
• 1959: Barbie introduced
• 2004: More than one billion Barbies sold
• 2011: Sales over $5 billion
Antique dolls representing adults from the 17th and 18th centuries have been found, but they are very rare. Individual craftsmen in England made most of these earliest dolls. The craftsmen carved the dolls of wood, painted their features, and also designed the costumes for the dolls. Some of these earliest dolls are valued at more than $40,000.
The Barbie doll is the most popular fashion doll ever created. If all the Barbie dolls that have been sold since 1959 were placed head-to-toe, the dolls would circle the earth more than seven times. The most popular Barbie ever sold was the Totally Hair Barbie, which was introduced in 1992. With hair from the top of her head to her toes, more than 10 million of these dolls were sold, resulting in revenue of $100 million. With annual retail sales at an estimated $3.6 billion, Barbie is the #1 brand of doll for girls.
Martha Spencer started The Doll House and sells dolls around the world through her Web site. Her business has grown over the years, but she still carefully watches costs. She knows that she must control costs to be successful. Help her figure out some of these costs.
Find the total of all of the costs that Martha Spencer must pay. This total is only a small part of her total costs each year-clearly she has to sell a lot of dolls to pay her bills.
_____

Question 32

Find the assessed value for the following pieces of property. (See Example.)
Finding the Assessed Valuation of Property
Find the assessed value for the following pieces of property owned by Martha Spencer.
(a) Home: fair market value $185,300; assessment rate 35%
(b) Business property: fair market value $328,500; assessment rate 35%
(c) Commercial lot located in a different state: fair market value $123,800; assessment rate 60%
SOLUTION
Multiply the fair market value by the assessment rate.
(a) $185,300 ×.35 = $64,855
(b) $328,500 ×.35 = $114,975
(c) $123,800 ×.60 = $74,280

Question 33

Find the property tax for the following. (See Example.)
Finding the Property Tax
Find the taxes on each of the following pieces of property. Assessed values and tax rates are given.
(a) $58,975; 8.4%
(b) $875,400; $7.82 per $100
(c) $129,600; $64.21 per $1000
(d) $221,750; 94 mills
SOLUTION
Multiply the tax rate by the assessed value.
(a) 8.4% =.084
Tax = Tax rate × Assessed value
Tax =.084 × $58,975 = $4953.90
(b) $875,400 = 8754 hundreds
Tax = $7.82 × 8754 = $68,456.28
(c) $129,600 = 129.6 thousands
Tax = $64.21 × 129.6 = $8321.62
(d) 94 mills =.094
Tax =.094 × $221,750 = $20,844.50

Question 34

Find the adjusted gross income for the following people. (See Example.)
Finding Adjusted Gross Income (AGI)
As an assistant manager at The Doll House, Jennifer Crum earned $24,738.41 last year and $1624.01 in interest from her credit union (see her W-2 and 1099 forms). She had $1500 in regular IRA contributions. Find her adjusted gross income.
SOLUTION

Question 35

Find the tax refund or tax due for the following people. The letter following the names indicates the marital status. Assume a 52-week year and that married people are filing jointly. (See Example.)
Determining Tax Due or Refund
At age 29, Jim Clark works as a petroleum engineer for ExxonMobil, where he helps design deep, complex wells being drilled offshore Africa. His wife stays at home and takes care of their toddler. His salary last year was $123,500, and $1210 was withheld from each monthly paycheck. They file a joint return and use the standard deduction. Find the amount of income tax due to the IRS or the amount overpaid, as applicable.
SOLUTION

The Clarks must send an additional $2930 in income taxes to the IRS with their income-tax return. Depending on the state in which they live, they may also owe some state income taxes. Although a few states do not have income taxes, most states do have them.

Question 36

Find the total annual premium fo the following. Use the table on page. (See Example.)
Finding the Annual Fire Insurance Premium
The Doll House is in a building rated class C. It is in territory 4. Find the annual premium if th replacement cost of the building is $640,000 and the contents are valued at $186,500.
SOLUTION
Building:

Question 37

Describe three factors that determine the premium charged for fire insurance. (See Objective.) _____
Find the annual premium for fire insurance. The amount of the premium charged by the insurance company depends on several factors. Among them are the type of construction of the building, the contents and use of the building, the location of the building, and the type and location of any fire protection that is available. Wood frame buildings generally are more likely to be damaged by fire than masonry buildings and thus require a higher premium.
Building classifications are assigned to building types by insurance company employees called underwriters. These building categories are usually designated by letters such as A, B, and C. Underwriters also assign ratings called territorial ratings to each area that describe the quality of fire protection in the area. Although fire insurance rates vary from state to state, the rates in the following table are typical.

Question 38

Find the annual premium for the following. (See Examples 1-5.)

Question 39

Find the annual premium, the semiannual premium, the quarterly premium, and the monthly premium for each of the following. (Note: Subtract 5 years for women.) Round to the nearest cent.

Question 40

Solve the following application problems.
WHOLE LIFE INSURANCE Find the total premium paid over 30 years for a whole life policy with a face value of $20,000. Assume that the policy is taken out by a 25-year-old man.

Question 41

The company property has a fair market value of $1,990,000 and is assessed at 75% of this value. If the tax rate is $7.90 per $1000 of assessed value, find the annual property tax.
_____

Question 42

Find the tax owed in the following problems.
The Blakely family has an adjusted gross income of $98,316. They are married and file jointly with five exemptions and deductions of $8420.
_____

Question 43

Find the assessed value for the following pieces of property. (See Example.)
Finding the Assessed Valuation of Property
Find the assessed value for the following pieces of property owned by Martha Spencer.
(a) Home: fair market value $185,300; assessment rate 35%
(b) Business property: fair market value $328,500; assessment rate 35%
(c) Commercial lot located in a different state: fair market value $123,800; assessment rate 60%
SOLUTION
Multiply the fair market value by the assessment rate.
(a) $185,300 ×.35 = $64,855
(b) $328,500 ×.35 = $114,975
(c) $123,800 ×.60 = $74,280

Question 44

Find the property tax for the following. (See Example.)
Finding the Property Tax
Find the taxes on each of the following pieces of property. Assessed values and tax rates are given.
(a) $58,975; 8.4%
(b) $875,400; $7.82 per $100
(c) $129,600; $64.21 per $1000
(d) $221,750; 94 mills
SOLUTION
Multiply the tax rate by the assessed value.
(a) 8.4% =.084
Tax = Tax rate × Assessed value
Tax =.084 × $58,975 = $4953.90
(b) $875,400 = 8754 hundreds
Tax = $7.82 × 8754 = $68,456.28
(c) $129,600 = 129.6 thousands
Tax = $64.21 × 129.6 = $8321.62
(d) 94 mills =.094
Tax =.094 × $221,750 = $20,844.50

Question 45

Find the adjusted gross income for the following people. (See Example.)
Finding Adjusted Gross Income (AGI)
As an assistant manager at The Doll House, Jennifer Crum earned $24,738.41 last year and $1624.01 in interest from her credit union (see her W-2 and 1099 forms). She had $1500 in regular IRA contributions. Find her adjusted gross income.
SOLUTION

Question 46

Find the tax refund or tax due for the following people. The letter following the names indicates the marital status. Assume a 52-week year and that married people are filing jointly. (See Example.)
Determining Tax Due or Refund
At age 29, Jim Clark works as a petroleum engineer for ExxonMobil, where he helps design deep, complex wells being drilled offshore Africa. His wife stays at home and takes care of their toddler. His salary last year was $123,500, and $1210 was withheld from each monthly paycheck. They file a joint return and use the standard deduction. Find the amount of income tax due to the IRS or the amount overpaid, as applicable.
SOLUTION

The Clarks must send an additional $2930 in income taxes to the IRS with their income-tax return. Depending on the state in which they live, they may also owe some state income taxes. Although a few states do not have income taxes, most states do have them.

Question 47

Find the total annual premium fo the following. Use the table on page. (See Example.)
Finding the Annual Fire Insurance Premium
The Doll House is in a building rated class C. It is in territory 4. Find the annual premium if th replacement cost of the building is $640,000 and the contents are valued at $186,500.
SOLUTION
Building:

Question 48

Explain the coinsurance clause and describe how coinsurance works. (See Objective.)
Use the coinsurance formula. Most fires damage only a portion of a building and the contents. Since complete destruction of a building is rare, many owners save money by buying insurance for only a portion of the value of the building and contents. Realizing this, insurance companies place a coinsurance clause in almost all fire insurance policies. Effectively, the business assumes part of the risk of a loss under coinsurance.
Replacement cost refers to the cost to replace (rebuild) a building in the event it is completely destroyed. It may surprise you to learn that the replacement cost for an older building is often far greater than the fair market value, since new construction costs often exceed the value of older buildings.
Most fire insurance contracts have an 80% coinsurance clause. This clause requires the owner of the building to have an insurance policy in effect with a face value that is at least 80% of the replacement cost of the building. If the policy has a face value greater than 80%, then the insurance companies pays for all losses caused by a fire. On the other hand, if the face value is less than 80%, then the insurance company will pay only a portion of any loss. The most the insurance company will pay is the smaller amount of the loss on the face value of the policy.
Finding amount insurance Will pay

Question 49

Find the annual premium for the following. (See Examples 1-5.)

Question 50

Find the annual premium, the semiannual premium, the quarterly premium, and the monthly premium for each of the following. (Note: Subtract 5 years for women.) Round to the nearest cent.

Question 51

Solve the following application problems.
UNIVERSAL LIFE INSURANCE Richard Gonsalves takes out a universal life policy with a face value of $50,000. He is 40 years old. Find the monthly premium.
_____

Question 52

MATTEL INC. - TAXES AND INSURANCE
www.mattel.com
Facts:
• 1945: Founded by Elliot and Ruth Handler
• 1959: Barbie introduced
• 2004: More than one billion Barbies sold
• 2011: Sales over $5 billion
Antique dolls representing adults from the 17th and 18th centuries have been found, but they are very rare. Individual craftsmen in England made most of these earliest dolls. The craftsmen carved the dolls of wood, painted their features, and also designed the costumes for the dolls. Some of these earliest dolls are valued at more than $40,000.
The Barbie doll is the most popular fashion doll ever created. If all the Barbie dolls that have been sold since 1959 were placed head-to-toe, the dolls would circle the earth more than seven times. The most popular Barbie ever sold was the Totally Hair Barbie, which was introduced in 1992. With hair from the top of her head to her toes, more than 10 million of these dolls were sold, resulting in revenue of $100 million. With annual retail sales at an estimated $3.6 billion, Barbie is the #1 brand of doll for girls.
Martha Spencer started The Doll House and sells dolls around the world through her Web site. Her business has grown over the years, but she still carefully watches costs. She knows that she must control costs to be successful. Help her figure out some of these costs.
Spencer is looking at a building that she hopes to buy for what she believes is the fair market value of $310,000. However, the replacement cost is estimated to be $420,000. The assessment rate is 30% and the tax rate is $64 per $1000 of assessed value. Find the property tax for the year.
_____

Question 53

Find the tax owed in the following problems.
Kari Heen had an adjusted gross income of $44,600 last year. She had deductions of $1280 for state income tax, $3620 for property tax, $3540 in mortgage interest, and $1450 in contributions. Heen claims one exemption and files as a single person.
_____

Question 54

Find the tax rate for the following. Write the tax rate as a percent, rounded to the nearest tenth of a percent. (See Example 2.)

Question 55

Solve the following application problems.
REAL ESTATE TAXES Martha Spencer owns the real estate used by The Doll House. The property has a fair market value of $328,500, the assessment rate is 35%, and the local tax rate is 5.2%. Find the tax.

Question 56

Find the amount of taxable income and the tax owed for each of the following people. Use the tax rate schedule. The letter following the names indicates the marital status, and all married people are filing jointly. (See Examples 2 and 3.)

Question 57

List four sources of income for which an individual might receive W-2 and 1099 forms. (See Objective.)
O BJ E CTIVE 2 Find the adjusted gross income. The first step in finding personal income tax is to find adjusted gross income. Adjusted gross income is the total of all income less certain adjustments. Employers are required to send out W-2 forms showing wages paid, federal income taxes withheld, Social Security tax withheld, and Medicare tax withheld. Other types of income such as interest, dividends, and self-employment income are shown on 1099 forms , which are also mailed to each individual. Sample W-2 and 1099-INT forms are shown on the next page.
Finding adjusted Gross income
Step 1 Add amounts from all W-2 and 1099 forms along with dividends, capital gains, unemployment compensation, and tips or other employee compensation.
Step 2 From this sum, subtract adjustments such as contributions to a regular individual retirement account (IRA) or alimony payments.

Question 58

Find the amount to be paid by the insurance company in the following problems. Assume that each policy includes an 80 % coinsurance clause. (See Examples 2 and 3.)

Question 59

In the following application problems, find the amount of the loss paid by (a) the insurance company and (b) the insured. Assume an 80 % coinsurance clause.
FIRE LOSS The Doll House is located in a building with a replacement cost of $328,500, but Martha Spencer insured it for only $200,000 in order to save money on insurance premiums. An electrical short causes a fire that results in $180,000 in damage.

Question 60

Describe four factors that determine the premium on an automobile insurance policy. (See Objective.)
Describe the factors that affect the cost of motor-vehicle insurance. Automobile insurance is one of the most common types of insurance. Banks or credit unions that finance automobiles require borrowers to buy automobile insurance. Many states require automobile insurance for people living and driving in those states. As you can see from the graph, the average cost of car insurance has increased sharply.

The premium , or cost, of an insurance policy is determined by actuaries who work for the insurance company. Actuaries look at the frequency and severity of accidents based on several factors, including
• location of the insured vehicle,
• age and sex of the driver,
• miles driven, and
• driving history of the driver.
These factors help measure the risk of insuring a particular driver, which is used to determine the premium. For example, drivers between 16 and 25 years of age are more likely to be involved in accidents and are therefore charged a higher premium. Some automobiles are more likely to be stolen than others, resulting in higher premiums for their owners. Several automobile coverages are now discussed.

Question 61

Find the annual premium, the semiannual premium, the quarterly premium, and the monthly premium for the following. (Note: Subtract 5 years for women.) Round to the nearest cent.

Question 62

Solve the following application problems.
PREMIUM FACTORS The annual premium for a whole life policy is $872. Using premium factors, find (a) the semiannual premium, _____ (b) the quarterly premium, _____ and (c) the monthly premium. _____

Question 63

Find the following property tax rates.

Question 64

Find the annual fire insurance premium for the following. Use the table on page.
Southside Plating owns a class-B building with a replacement cost of $780,000. Contents are valued at $128,600. The territorial rating is 5.
_____

Question 65

Find the tax rate for the following. Write the tax rate as a percent, rounded to the nearest tenth of a percent. (See Example 2.)

Question 66

Solve the following application problems.
APARTMENT OWNER Chad LeCompte owns a four-unit apartment building with a fair market value of $248,000. Property in the area is assessed at 40% of market value, and the tax rate is 5.5%. Find the amount of the property tax.
_____

Question 67

Find the amount of taxable income and the tax owed for each of the following people. Use the tax rate schedule. The letter following the names indicates the marital status, and all married people are filing jointly. (See Examples 2 and 3.)

Question 68

List four possible tax deductions, and explain the effect that a tax deduction will have on taxable income and on income tax due. (See Objective.)
O BJ E CTIVE 5 List possible deductions. Actually, taxpayers may deduct the larger of itemized deductions or the standard deduction from their adjusted gross income before finding taxable income. This is particularly applicable to individuals who are paying interest on a home loan, but sometimes others can use this to their advantage. The most common tax deductions are listed next.
Medical and dental expenses: Only medical and dental expenses exceeding 7.5% of adjusted gross income may be deducted. This deduction is effectively limited to catastrophic illnesses for most taxpayers. Expenses reimbursed by an insurance company are not deductible.
Taxes: State and local income taxes, real estate taxes, and personal property taxes may be deducted (but not federal income or gasoline taxes).Interest: Deductible interest includes interest on a home mortgage and qualified interest on other real estate. Other personal interest is not deductible.
Gifts to charity: Gifts to an eligible charity (such as a church) are deductible.
Casualty or theft losses: Losses due to a casualty (e.g., fire) or theft are deductible if not reimbursed by insurance.
Unreimbursed job expenses , tax preparation , and miscellaneous deductions: These expenses are deductible only if the total exceeds 2% of the taxpayer's adjusted gross income.

Question 69

Find the amount to be paid by the insurance company in the following problems. Assume that each policy includes an 80 % coinsurance clause. (See Examples 2 and 3.)

Question 70

In the following application problems, find the amount of the loss paid by (a) the insurance company and (b) the insured. Assume an 80% coinsurance clause.
GIFT-SHOP FIRE LOSS Indonesian Wonder gift shop has a replacement cost of $395,000. The shop is insured for $280,000. Fire loss is $22,500.
(a) _____
(b) _____

Question 71

Explain in your own words the difference between liability (bodily injury) and property damage.
Define liability insurance. Liability or bodily injury insurance protects the insured in case he or she injures someone with a car. Many states have minimum amounts of liability insurance coverage set by law. The amount of liability insurance is expressed as a fraction, such as 15/30. The fraction 15/30 means that the insurance company will pay up to $15,000 for injury to one person, and a total of $30,000 for injury to two or more persons in the same accident.
However, many experts recommend liability limits of at least 100/300. This is because a single driving mistake can be very costly, as shown in the following newspaper clipping.
One Accident affects Life
Thomas Garcia has driven for 10 years and has never had an accident or a speeding ticket. However, his life changed instantly when he accidently ran through a stop sign and hit a car driven by a nurse. She is now disabled and can no longer work. Garcia's policy limits of 25/50 are not nearly enough to pay her bills, and her lawyer is taking Garcia to court. Garcia wishes that he had carried higher liability limits.
The following table shows typical premium rates for various amounts of liability coverage. Included in the cost of the liability insurance is medical insurance for the driver and passengers in case of injury. For example, the table column 15/30 shows that the insured can also receive reimbursement for up to $1000 of his or her own medical expenses in an accident. Insurance companies divide the nation into territories based on past claims in all areas. Four territories are shown here. All tables in this section show annual premiums.
Define property damage insurance. Liability coverage pays if you injure someone. Property damage coverage pays if you damage someone else's property such as an automobile or a building. The following table shows the annual cost for various policy limits on property damage. You are responsible for damages above the policy limit.

Question 72

Find the annual premium, the semiannual premium, the quarterly premium, and the monthly premium for the following. (Note: Subtract 5 years for women.) Round to the nearest cent.

Question 73

Solve the following application problems.
PREMIUM FACTORS A universal life policy has an annual premium of $2012. Use premium factors to find (a) the semiannual premium, _____ (b) the quarterly premium, _____ and (c) the monthly premium. _____

Question 74

The building occupied by the company is a class-B building with a replacement cost of $1,730,000. The contents are worth $3,502,000 and the territorial rating is 4. Find the annual fire insurance premium.
_____

Question 75

Find the annual fire insurance premium for the following. Use the table on page.
A fourplex is valued at $220,000. The fire insurance policy (with an 80% coinsurance clause) has a face value of $150,000. If the building has a fire loss of $50,000, find the amount of the loss that the insurance company will pay.
_____

Question 76

Find the tax rate for the following. Write the tax rate as a percent, rounded to the nearest tenth of a percent. (See Example.)
Finding the Tax Rate
Find the tax rate for the following school districts, rounded to the nearest hundredth of a percent.
(a) Amount needed = $14,253,000; total assessed value = $1,575,890,000
(b) Amount needed = $8,490,000; total assessed value = $983,270,000
SOLUTION
(a)

(b)

Question 77

Solve the following application problems.
COMMERCIAL PROPERTY TAX A new FM radio station broadcasts from a building having a fair market value of $334,400. The building is in an area where property is assessed at 25% of market value, and the tax rate is $75.30 per $1000 of assessed value. Find the property tax.
_____

Question 78

Find the amount of taxable income and the tax owed for the following people. Use the tax rate schedule. The letter following the names indicates the marital status, and all married people are filing jointly. (See Examples.)
Find Taxable Income and the Income Tax Amount
Find the taxable income and income tax for each of the following.
(a) Herbert White, married filing jointly, 5 daughters, adjusted gross income $48,300
(b) Onita Fields, single, no dependents, adjusted gross income $28,400
(c) Imogene Griffin, single, head of household, 2 children, adjusted gross income $74,500
(d) Jeffy Norwood, married filing separately, 1 child, adjusted gross income $145,000
SOLUTION
(a) Herbert White + spouse + 5 daughters = 7 exemptions

The tax rate for married filing jointly with less than $17,000 in taxable income is 10%.

(b) Onita Fields = 1 exemption


(d) Jeffy Norwood + 1 child = 2 exemptions

Using Itemized Deductions to Find Taxable Income and Income Tax

Kristina Kelly is single, has 1 child, and had an adjusted gross income of $58,700 last year. She paid $3240 in real estate taxes, $7280 in home mortgage interest, and donated $1200 to her church. Find her taxable income and her income tax if she files as head of household.
SOLUTION
Itemized deductions = $3240 + $7280 + $1200 = $11,720
Her itemized deductions of $11,720 exceed the standard deduction of $5800 for a single person, so she uses the itemized deduction amount.

Question 79

Find the tax in the following application problems
MARRIED-INCOME TAX The Tobins had an adjusted gross income of $98,700 last year. They had deductions of $2820 for state income tax, $490 for city income tax, $4400 for property tax, $5800 in mortgage interest, and $1450 in contributions. They file a joint return and claim 5 exemptions.
_____

Question 80

Find the amount to be paid by the insurance company in the following problems. Assume that policy includes an 80 % coinsurance clause. (See Examples.)
Using the Coinsurance Formula
Dayton Properties owns a small apartment building with a replacement cost of $760,000. The fire insurance policy has an 80, coinsurance clause and a face value of $570,000. A fire started in the kitchen of a tenant and swept through three apartments, resulting in $144,000 in losses. Find the amount of the loss that the insurance company will pay.
SOLUTION
The policy must have a face value of at least 80, of $760,000 or $608,000 in order to receive the payment for the entire loss. Since the face value of $570,000 is less than 80, of the replacement cost, the company will pay only the following portion of the loss.

The calculator solution to this example uses chain calculations and parentheses to set off the denominator. The result is then subtracted from the fire loss.

Note: Refer to Appendix B for calculator basics.
Finding the Amount f Loss Paid by the nsurance Company
A Swedish investment group owns a warehouse with a replacement cost of $3,450,000. The company has a fire insurance policy with a face value of $3,400,000. The policy has an 80, coinsurance feature. If the firm has a fire loss of $233,500, find the part of the loss paid by the insurance company.
SOLUTION
The business has
a fire insurance policy with a face value of more than 80, of the value of the store. Therefore, the insurance company pays the entire $233,500 loss.