James, age 18, lives at home and occasionally drives the car of his friend, Mary. Mary carries $300,000 of liability insurance on her car under a PAP. James is also insured under his mother’s PAP, which provides $500,000 of liability coverage. Assume that James has an accident while using Mary’s car and is found to be legally liable in the amount of $400,000. How much, if any, will each policy pay? Explain your answer.
Answer to relevant Questionsa. Explain the historical definition of risk.b. What is a loss exposure?c. How does objective risk differ from subjective risk?Describe the major social and economic burdens of risk on society.What are the two major differences between insurance and hedging?Explain how personal liability insurance can be added to a dwelling policy.Identify the major risks faced by business firms.
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