You own a home with a market value of $175,000. Of this amount, $50,000 is apportioned to
Question:
You own a home with a market value of $175,000. Of this amount, $50,000 is apportioned to the land and $125,000 is apportioned to the house. It is estimated that the house would cost $135,000 to rebuild. The personal property in your own home is worth $55,000, including a $3,5000 diamond ring and a $4,500 computer system. You also own a car worth $25,000. You live in a state where there is a high risk for earthquakes. You have $100,000 in savings and investments that could be drawn on in case of emergency. You currently have a standard HO-3 homeowner's policy with a $1,000 deductible, which insures your house for $175,000 and your personal belongings for $85,000, and you carry the minimum requirements of your state for car insurance. You have been advised to adjust your insurance coverage based on the large-loss principle.
Based on the large-loss principle and your particular situation a ($0, $500, $1000, $5000) is most appropriate for your homeowner's policy.
Given your current insurance coverage, in the event of a fire, your house and household belongings are over-insured by ($55,000, $70,000, $145,000, $30,000)
If you were to reduce the coverage on your home to its replacement value of $135,000, then your personal property coverage could also be reduced to ($76,000, $67,500 , $112,500). This is because the minimum personal coverage available on an HO-3 policy is (35%, 40%, 50%, 60%) of the home coverage.
If you were to total your car in an accident at which you are at fault, your insurance company is likely to pay ($0, $19,500, $25,000).
Assume your state's minimum liability limits for an automobile policy 25/50/25. Next assume that your cause an accident that involves multiple injuries to three people, each with medical expenses of $200,000. The maximum bodily injury payout that could be made on your behalf by your insurance company for this accident is ($25,000 , $1,000,000 , $150,000 , $600,000 , $500,000 , $75,000 , $50,000 ).
Introduction to Derivatives and Risk Management
ISBN: 978-1305104969
10th edition
Authors: Don M. Chance