Joe and Lisa White are a married couple. Joe is 63 and Lisa is 61. Joe is thinki
ID: 2749854 • Letter: J
Question
Joe and Lisa White are a married couple. Joe is 63 and Lisa is 61. Joe is thinking about retiring in a few years, and the Whites have come to you for an insurance evaluation. Lisa plans to continue working even after Joe retires. The following provides a summary of the Whites’ insurance planning situation.
Life Insurance
Joe owns a $500,000 universal life insurance policy. Joe is the insured and their son David, age 37, is the beneficiary. The policy has a cash value of $50,000 and a living benefits provision; all account earnings are used to offset premium expenses. Lisa owns a 20 year $350,000 level term life policy that she purchased five years ago. She pays approximately $1,000 per year in premium costs. Lisa is the insured and Joe is the beneficiary.
Property and casualty insurance
Joe and Lisa own a home as JTWROS. The home has a market and replacement value of $675,000. The house is insured with the standard HO-3 policy for $550,000. The policy requires that the Whites pay a $500 deductible per claim occurrence. Other provisions include the following:
10% coverage on detached structures
Coverage up to $250 for cash
Coverage up to $1,500 for collectibles, artwork, and similar assets
Personal property contents coverage equal to 20% of the insured dwelling
Living expenses coverage for six months
Coverage up to $100,000 for personal liability
A replacement cost coverage endorsement is in place
The Whites’ two cars are insured under a personal automobile policy with split limit coverage of 250,000/500,000/50,000. They also have a $1 million excess liability policy.
Health insurance
The Whites are covered under Lisa’s group health insurance plan. The traditional plan has a lifetime maximum benefit equal to $5 million for the family, a $500 per person deductible, and an 80% coinsurance clause, with the family stop-loss limit of $2,500.
Using this information, please answer the following questions.
5. If the Whites sustain an $90,000 loss to their dwelling from a fire, how much will the insurance company pay (after the deductible) toward the dwelling loss claim? Justify your answer. Show all computations.
5A. $550,000
5B. $55,000
5C. $89,500
5D. $90,000
6. Lisa believes that her husband is a reckless driver. She worries about what would happen if he were ever in a serious car accident. If Joe is involved in a car accident and causes physical harm to another motorist in the amount of $300,000, how much will be paid from the personal automobile policy (PAP) and how much from the excess liability policy? Show your computations.
6A. $300,000 PAP and $0 excess liability
6B. $0 PAP and $300,000 excess liability
6C. $150,000 PAP and $150,000 excess liability
6D. $50,000 PAP and $250,000 excess liability
6E. $250,000 PAP and $50,000 excess liability
Explanation / Answer
5. If the Whites sustain an $90,000 loss to their dwelling from a fire, how much will the insurance company pay (after the deductible) toward the dwelling loss claim? Justify your answer. Show all computations.
Answer:
HO-3 (aka Homeowners 3, Special Form) is the most commonly purchased policy, which is an open perils policy that covers any direct damage to the house or other structures on the property unless it is specifically excluded. However the coverage for personal property is for named perils only—the same perils listed in an HO-2 policy. Covered losses on realty are insured for full replacement value with no depreciation deduction, although certain restrictions apply.
Therefore Full $90000 will be given by the insurance company.
So the correct answer is 5D.
5A. $550,000
5B. $55,000
5C. $89,500
5D. $90,000
6. Lisa believes that her husband is a reckless driver. She worries about what would happen if he were ever in a serious car accident. If Joe is involved in a car accident and causes physical harm to another motorist in the amount of $300,000, how much will be paid from the personal automobile policy (PAP) and how much from the excess liability policy? Show your computations.
Answer:
The limit of liability can be a single limit or a split limit. The standard policy provides for a single limit that is the limit for all liability, no matter how it is apportioned. By using an endorsement, many people opt for a split limit. A split limit divides the limit of liability into 3 parts: the limit for each person, the total limit, and limit for property damage. Thus, a split limit of 100/300/50 would have a limit of liability of $100,000 for each person, a total limit of $300,000, and a limit of $50,000for property damage.
For instance, suppose you injure 3 people and caused $25,000 damage to their car. One is severely injured with $125,000 worth of damages, one is moderately injured with $75,000 of damages, and the other is the least injured with $50,000 of damages. If your policy had a single limit of $300,000, then you would be entirely covered. With a 100/300/50 split policy, $25,000 of damages to the severely injured person would not be covered. You would have to pay for that.
So here the correct answer is 6A.
6A. $300,000 PAP and $0 excess liability
6B. $0 PAP and $300,000 excess liability
6C. $150,000 PAP and $150,000 excess liability
6D. $50,000 PAP and $250,000 excess liability
6E. $250,000 PAP and $50,000 excess liability
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