Home and auto insurance Flashcards
(20 cards)
Peril is defined as:
Peril is defined as the cause of a possible loss, such as accidents, fire, windstorm, robbery, disease, or death.
All of the following are characteristics of pure risks
Pure risks are insurable, whereas speculative risks are not insurable because they can result in a possible financial gain.
Which of the following is not a method discussed in the video as a way to deal with risk?
Risk shifting, avoidance, reduction, and assumption were all discussed in the video as ways to deal with risk.
Assume your 10-year old home originally cost $300,000 and is expected to have a 50 year life. Unexpectedly, a fire totally destroys your home and the home is now worth $350,000. Under the actual cash value method, what will the insurance company pay you?
The yearly depreciation amount is calculated by dividing the current cost ($350,000) by the expected life (50 years), which means the annual depreciation amount is $7,000. The total depreciation for the 10 years the home is held is equal to $7,000 multiplied by 10 years, which equals $70,000. The amount of insurance coverage can now be calculated by current cost ($350,000) minus total depreciation ($70,000), which equals $280,000.
Assume your 10-year old home originally cost $300,000. Unexpectedly, a fire totally destroys your home. Over the past 10 years, your home has increased in value by 20 percent and is now worth $360,000. Under the replacement value coverage, what will the insurance company pay you?
If a fire destroys this home, the insurance company will pay the homeowner $360,000 – the replacement cost of the home. Because you chose replacement coverage, there is no depreciation deducted from the current value of your home.
All of the following are situations that could cause your insurance premium to increase or decrease
Factors that can cause your insurance premium to increase or decrease include the location of your home, the type of home and construction materials to build your home, and the type of policy you select and the financial limits of coverage.
In split limit coverage, the second number represents:
The second number in split limit coverage is the limit for claims that can be paid to all individuals involved in an accident where you are liable.
Medical payments insurance provides medical benefits or the cost of health care to:
While bodily injury liability pays for the costs of injuries to persons who were not in your automobile, medical payments covers the cost of health care for you and other people who were injured in your automobile.
Uninsured and underinsured motorist’s protection provides protection for you and your family against all of the following,
Uninsured and underinsured motorist’s protection provides protection for you and your family against accidents caused by a person without insurance, accidents caused by a person with inadequate insurance, financial losses from injuries caused by a hit-and-run driver, and financial losses from injuries caused by an underinsured driver who has insufficient coverage to cover the cost of your injuries. It does not protect against accidents involving individuals with high premium auto insurance.
Factors that insurance companies consider when determining premiums for auto insurance include all of the following
The type of car you drive, the places you live/work/drive, and driver classification are all considered by insurance companies to determine your premium for auto insurance.
All of the following are actions that you can take to reduce your auto insurance premiums and qualify for discounts
Alternating your driving habits is one action that individuals can take to reduce auto insurance premiums and qualify for discounts.
Why is it important to compare auto insurance premiums?
It is important to compare auto insurance premiums because different insurance companies, even in the same geographic area, can have premiums that vary as much as 100%.
Most home insurance policies cover jewelry for $3,000 and silverware for $7,500 unless items are covered with additional insurance. If $10,500 worth of jewelry and $11,400 worth of silverware were stolen from a family without additional insurance, what amount of the claim would not be covered by insurance?
Uncovered portion of claim = (Jewelry claim − Jewelry limit) + (Silverware claim − Silverware limit)
= ($10,500 − $3,000) + ($11,400 − $7,500)
= $11,400
What amount would a person with actual cash value coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $4,000 to replace today and has an estimated life of five years.
Insurance payment = Replacement cost − Depreciation
= $4,000 − [($4,000 ÷ 5) × 2]
= $4,000 − $1,600
= $2,400
What would it cost an insurance company to replace a family’s personal property that originally cost $50,000? The replacement costs for the items have increased 18 percent.
Replacement cost = Original cost × (1 + Inflation percent)
= $50,000 × (1 + 0.18)
= $50,000 × 1.18
= $59,000
For each of the following situations, what amount would the insurance company pay?
Note: For all the requirements, leave no cells blank - be certain to enter “0” wherever required.
Wind damage of $2,355; the insured has a deductible of $1,000.
Theft of a computer system worth $2,600; the insured has a deductible of $1,000.
Vandalism that does $850 of damage to a home; the insured has a deductible of $1,000.
Insurance payment = MAX[(Claim amount − Deductible), 0]
Insurance payment = MAX[($2,355 − $1,000), 0]
= $1,355
Insurance payment = MAX[($2,600 − $1,000), 0]
= $1,600
Insurance payment = MAX[($850 − $1,000), 0]
= $0; deductible amount exceeds loss
Becky has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?
The maximum amount the insurance company would pay is $50,000 for all claims in an accident.
Kurt has 50/100/15 auto insurance coverage. One evening, he lost control of his vehicle, hitting a parked car and damaging a storefront along the street. Damage to the parked car was $5,500, and damage to the store was $12,750.
What amount will the insurance company pay for the damages?
What amount will Kurt have to pay?
Insurance payment = MIN[Claim amount, Policy limit]
= MIN[($5,500 + $12,750), $15,000]
= $15,000
Personal liability = Claim amount − Insurance payment
= ($5,500 + $12,750) − $15,000
= $3,250
Karen and Mike currently insure their cars with separate companies, paying $900 and $750 a year. If they insured both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over 10 years based on an annual interest rate of 6 percent. Use Exhibit 1-B.
Note: Round FVA factor to 3 decimal places and final answer to 2 decimal places.
Annual savings = Annual premium × Savings percent
= ($900 + $750) × 0.10
= $1,650 × 0.10
= $165
Future value = Annual savings × Future value annuity factor
= $165 × 13.181
= $2,174.86
When Carolina’s house burned down, she lost household items worth a total of $75,000. Her house was insured for $240,000, and her homeowner’s policy provided coverage for personal belongings up to 55 percent of the insured value of the house. There are no deductibles.
Calculate how much insurance coverage Carolina’s policy provides for her personal possessions.
Will she receive full payment for all of the items destroyed in the fire?
Personal property coverage = Building coverage × Personal property coverage percent
= $240,000 × 0.55
= $132,000
Because the value of the lost items was $75,000, Carolina will receive payment for all of the items destroyed by fire.
