Case Application #1 50 points (5 points for each correct answer)

Michael is a college senior majoring in Marketing. He owns a high mileage 2005 Ford that has a current market value or $2,500. The replacement value of hi clothing, television, computer, other electronic equipment and other items in his rented apartment is $10,000. He uses disposable contact lenses which cost $200 for a 6-month supply. He uses a waterbed in his rented apartment that is old and has leaked in the past. Michael is an avid runner and runs 5 miles a day in a nearby public park th because of assaults, muggings and drive-by shootings. Michael had a limited income and relies on his parents to pay his tuition.

For each of the personal risks that Michael faces, identify an appropriate risk management technique that Michael could use to deal with the exposure, and explain your answer.

1. Physical damage to his vehicle due to a collision or theft.

Retention=As the car is having a limited value due to its old condition, it is not advisable to buy collision insurance. This kind of exposure can be managed effectively with the help of a retention.

2. Possible lawsuit for his negligent operation of the vehicle.

Liability insurance=As there are chances of facing some catastrophic losses resulting from the exposure, it is advisable to buy the automobile liability insurance.

3. Loss of his apartment contents due to a kitchen fire in his apartment.

Insurance=To manage the property exposure of $10000, the most suitable type of insurance is property insurance. This policy should have some sort of deductible.

4. Losing a contact lens.

Retention. As the relative value of loss resulting from the loss of the contact lens is small so the suitable protection can be obtained with the help of retention.

5. A waterbed leak that damages the apartment below him.

Loss control. =To ensure the avoidance of possible damages to the apartment, it is advisable to check the possible leak of the waterbed. Otherwise, it is advisable to have an endorsement that can be used to the homeowner's policy to cover the liability exposure.

6. Injuries due to being assaulted in the park.

Avoidance=It is better to go for the new running route rather than going for the same park.

7. Loss of tuition if Michaels father dies.

Life insurance= It is advisable for the father of Michael to buy life insurance, In case of the death of his father, the loss of tuition can be replaced by the life insurance

8. Are these speculative or pure risks that Michael is facing? Explain.

9. Are the risks that Michael faces diversifiable? explain

10. What is the difference between peril and hazard?