Chapter 10 - Protecting Your Property

8) F.

Basic Policy Provisions

5) Insuring a Standard Home Cho is the owner of a 30-year-old home, and is looking to buy a homeowner's insurance policy. The previous home she owned was severely damaged by a tree falling through the roof, a peril that was not covered by her basic-form policy, therefore she is looking to buy a comprehensive policy that covers damage from all perils (except those specifically excluded). Based on the peril coverage it offers, she purchases an _____________________ insurance policy.

HO-2 or HO-3

5) Insuring While Away at College Cho's son, Bob, is a college student living in a campus dormitory. He drives a car that she parks on the street and wants to make sure the full value is insured. Which of the following statements regarding Bob's insurance needs are true? Check all that apply.

His property is covered up to 10% of the coverage on the home

11) Other types of insurance In addition to these policies, Manuel is considering an umbrella liability insurance policy with a limit of $1 million. Which of the following statements regarding umbrella policies is true?

If Manuel's mother-in-law trips on a broken step on his porch and suffers injuries that require $120,000 worth of medical care, his umbrella policy will cover the difference between the total cost and what the HO-2 covers.

4) What coverages are provided in a homeowner's policy? Which of the following could potentially reduce the annual premium on your homeowner's policy.

Install smoke and burglar alarms

1) Replacement Cost

Insurance coverage which pays for the replacement cost of a damaged or destroyed item pays the full amount necessary to repair, rebuild, or replace an insured asset. Unlike actual cash value coverage, it does not deduct the amount of the insured asset's physical depreciation. It recognizes the asset's current market value.

1) Actual Cash Value

Insurance coverage which pays the actual cash value (ACV) of a damaged or destroyed item pays an amount calculated by subtracting an insured property's amount of physical depreciation from its replacement cost.

8) E.

Insured's Duties and Responsibilities

8) A. This pays for bodily injury and/or property damage caused by ______________________________ for which you ______________________________.

Liability Coverage - an automobile accident - are legally responsible

8) B. This pays for _____________________________________ accident-related expenses for up to __________ years after the accident—provided that those expenses do not exceed the policy's limit.

Medical Payments Coverage - reasonable and necessary - three

4) What coverages are provided in a homeowner's policy? Which of the following describes a strategy that could increase your liability coverage?

Purchasing a personal liability umbrella policy

8) C. This coverage is designed to protect policyholders, including the named insured and his or her family, when they are negligently injured by _________________________________________.

Uninsured Motorists Coverage - hit-and-run and uninsured drivers

1) Liability Insurance

protects against the financial consequences that arise from the insured's responsibility for property loss or injuries to others.

8) Complete the following statements regarding the coverages provided by the PAP. • One way to reduce your insurance premium is to _______ your deductible.

raise

2) Ethan's Story : Actual Cash Value vs. Replacement Cost Coverage Ethan owns a house in and last week suffered some damage to his house. Specifically, a portion of his home was damaged by a fire and the damage to the structure and his personal property is expected to have a replacement cost of $12,000. The same items, which had an original cost of $4,800 when he'd bought them six years ago, had an estimated useful life of ten years. After calling his insurance agent, Ethan was reminded that he carries full insurance on, or 80% of the replacement cost value of, the house. However, to save $60 per year in his premium, he 'd only covered his possessions for their actual cash value. Given this information, Ethan can expect to receive only$____________ in compensation for his loss. In contrast, if he had carried replacement cost, instead of actual cash, coverage, then he would have received $_______________.

- $4,800 - $12,000

7) Darnell's Replacement Cost Coverage Darnell recently purchased a $90,000 broad form HO-2 policy with no deductible. A year later, his roof is damaged by a fire and he suffers a loss of $72,000. If the replacement value of Darnell's house is 150,000 and the insurance policy includes a replacement cost requirement of 80%, he will receive a reimbursement of $_________________.

$54,000

5) Insuring While Away at College Valerie's son, Shen, is a college student living in a campus dormitory. He drives a car that she parks on the street and wants to make sure the full value is insured. Which of the following statements regarding Shen's insurance needs are true? Check all that apply.

- His property is covered up to 10% of the coverage on the home

3) What are the different forms of the homeowner's policy? Comprehensive personal liability coverage is provided under _______________ of the homeowner's policy. Although it protects against nearly any source of liability resulting from negligence, there are exclusions, including incidents involving the following:

- Section II - Libel, slander, or defamation of character

11) Other types of insurance In addition to these policies, Raphael is considering an umbrella liability insurance policy with a limit of $1 million. Which of the following statements regarding umbrella policies is true?

If Raphael causes an automobile accident and the other driver's medical bills total $110,000, his umbrella policy will pay the $10,000 not covered by his auto insurance.

4) What coverages are provided in a homeowner's policy? Regarding basic homeowners insurance coverage, identify policy modifications that could provide better protection during periods of inflation. Check all that apply.

- Increase the coverage on the dwelling to 100% of its replacement cost - Add an inflation rider

10) Computing your liability - An auto insurance example Paolo's car was relatively unharmed by the collision but required 1,200 in minor repairs. Sharon's car was destroyed, making Paolo liable for paying the $10,400 replacement value. Sharon's car was pushed up onto a nearby sidewalk on impact, destroying a nearby lawn and causing additional damage to a parked car. This damage totaled $8,693. Paolo's liability coverage also will reimburse him for up to $_________________ worth of property damage. Therefore, he is responsible for paying $______ out-of-pocket in property liability damages. Which of the following is true regarding the damage to his own car? _________________________________________.

- $50,000 - $0 - It will be reimbursed fully, minus the $500 deductible.

8) Complete the following statements regarding the coverages provided by the PAP. • Most states allow you, as a policyholder, to seek reimbursement for your medical expenses up to the limit of your policy, even if the following are true. Check all that apply.

- You have already received compensation from your health insurance company. - Your insurance company proves that someone else was at fault and you've already been paid by the other person's insurance company.

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Nick's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $33,616*** Nick has a $56,000 HO-1 form insurance policy. No additional endorsements or floaters have been added to the policy. Therefore, the actual cash value (ACV) of his property ____ covered under this policy and the replacement cost of his property _________ covered.

- is - is not

5) Insuring While Away at College Alyssa's son, Tim, is a college student living in an off-campus apartment where he resides year round. He owns an expensive computer and wants to make sure the full value is insured. Which of the following statements regarding Tim's insurance needs are true? Check all that apply.

If he purchases an HO-4 policy, he can choose the value of the property he wishes to insure

1) Negligence

This is the legal term given to the practice of failing to act in a reasonable manner or to take the steps necessary to protect others from harm. the legal term given to the practice of failing to act in a reasonable manner or to take the steps necessary to protect others from harm. An example of this type of behavior is speeding and driving erratically during a rainstorm or having a swimming pool that is not surrounded by a lockable fence or other protective device.

2) Jamison's two insurance policies Jamison owns a house in Newport and carries two insurance policies on it. The first policy carries a policy limit of $125,000; the second carries a limit of $95,000. Given a covered loss of $6,000, the first policy will pay a maximum amount of $____________, and the second policy will pay a maximum of $___________.

- $3,409 - $2,591

2) Salvatore's two insurance policies Salvatore owns a house in Manchester and carries two insurance policies on it. The first policy carries a policy limit of $125,000; the second carries a limit of $95,000. Given a covered loss of $6,000, the first policy will pay a maximum amount of $________________, and the second policy will pay a maximum of $___________.

- $3,409 - $2,591

12) Filing an Insurance Claim Felix returned home to his apartment one evening and found the window in his bedroom broken and his laptop, television, speaker system, and $120 in cash stolen. Unfortunately, he was given both the TV and speakers as gifts and did not have the serial numbers or other details that would help him determine the value of his loss. After cleaning up the broken glass, Felix called his insurance agent to file a claim. He then called the police to file a police report. Which of the following statements regarding Felix's situation are correct? Check all that apply.

- Felix would probably receive more money from the insurance company if he had better documentation of his loss. - Felix should not have cleaned up his apartment before taking photos of the broken window.

5) Insuring an Older Home Cho's parents live in the home a Victorian style home built in the late 1800s. Although the house is still standing, it has fallen into disrepair, and the cost of rebuilding it with the original style and quality would be extremely high. If their home were destroyed, Cho's parents would choose to rebuild a much more modest structure rather than try to restore it to it's original state, therefore they purchase a ___________ form policy to provide ______________________ protection.

- HO-8 - actual-cash-value

3) What are the different forms of the homeowner's policy? Section II of the homeowner's policy provides which types of insurance coverage? Check all that apply.

- Medical payments coverage for non-family members - Comprehensive personal liability coverage

8) Complete the following statements regarding the coverages provided by the PAP. • Three conditions must be met for you to receive compensation under Uninsured Motorists Coverage. These are as follows. Check all that apply.

- The injured motorist must have sustained damages. - The at-fault motorist is underinsured or lacks insurance altogether.

3) What are the different forms of the homeowner's policy? Which of the following are coverages provided by Section II of the homeowner's policy? Check all that apply.

- The payment of court costs - The cost of defending the insured homeowner - The reasonable expense incurred by the homeowner in assisting in the insurance company's defense

2) Savannah's Story : Actual Cash Value vs. Replacement Cost Coverage Savannah owns a mobile home in and last week suffered some damage to her mobile home. Specifically, a portion of her home was damaged by a windstorm and the damage to the structure and her personal property is expected to have a replacement cost of $9,000. The same items, which had an original cost of $5,400 when she'd bought them four years ago, had an estimated useful life of ten years. After calling her insurance agent, Savannah was reminded that she carries full insurance on, or 80% of the replacement cost value of, the house. However, to save $60 per year in her premium, she 'd only covered her possessions for their actual cash value. Given this information, Savannah can expect to receive only $__________ in compensation for her loss. In contrast, if she had carried replacement cost, instead of actual cash, coverage, then she would have received $_________.

- $5,400 - $9,000

8) Complete the following statements regarding the coverages provided by the PAP. • Comprehensive coverage pays to repair damage to an insured's vehicle caused by perils ________________ collision. This part of the PAP protects the vehicle but normally does not cover ______________________________________________________.

- other than - theft of personal property from the vehicle

3) What are the different forms of the homeowner's policy? Consider the following situations and, based solely on the information given, indicate the most appropriate form of homeowner's policy or supplemental floater. 1) This policy is often recommended for older houses whose replacement costs are significantly greater than their market values. 2) This policy is not often recommended because its list of covered perils is relatively limited. 3) This policy is recommended for policyholders living in a rental house, apartment, or other dwelling.

1) HO-8 2) HO-1 3) HO-4

11) Other types of insurance Manuel is a doctor with a standard HO-2 policy with $425,000 worth of insurance on his home, an auto insurance policy with liability limits of 100/300/50, and an additional professional liability policy that protects him against negligence and mistakes made only in his professional activities with a $500,000 limit. His daughter recently took a course in personal finance and wants to make sure her father is adequately protected from potential losses. Although she knows her father has all the standard policies, she describes a number of situations that aren't always covered under standard policies. For each of the scenarios that follow, indicate either (1) which of Manuel's current coverages already protect him or (2) the correct type of coverage that would protect him against the loss described. 1) An earthquake destroys the deck of the home, causing $20,000 worth of damage. 2) Vandals destroy the shed in his backyard; the damages total $5,800. 3) The camera is stolen from inside his car.

1) Buy earthquake insurance 2) Already covered under HO-2 3) Floater policy

10) Computing your liability - An auto insurance example Felix has a Personal Automobile Policy (PAP) that provides liability coverage with limits of $15/30/15, no medical payment insurance, and uninsured and underinsured motorist coverage with limits of $50/100. He has collision and comprehensive coverage, both of which have a $100 deductible. Suppose one day Felix fails to notice a red light, causing him to blindside another car crossing the intersection. Fortunately, he is not badly injured, but the medical bill for his hospital examination nonetheless amounts to $624. The driver of the other car, a woman named Janet, suffered severe injuries from the direct impact of the accident, requiring an initial surgery, an extended hospital stay, and additional physical therapy procedures for several subsequent months. The total of her medical bills, plus compensation for being unable to work for nearly a month, totaled $32,634. Janet's insurance company successfully filed a claim against Felix by exercising subrogation rights. Coverage A of Felix's plan will reimburse him for $_____________ of Janet's medical bills. Felix's medical bills _______________________________.

- $15,000 - are not covered by his policy

2) Alexander's Story : Actual Cash Value vs. Replacement Cost Coverage Alexander owns a house in and last week suffered some damage to his house. Specifically, a portion of his home was damaged by a lightening strike and the damage to the structure and his personal property is expected to have a replacement cost of $9,000. The same items, which had an original cost of $2,700 when he'd bought them seven years ago, had an estimated useful life of ten years. After calling his insurance agent, Alexander was reminded that he carries full insurance on, or 80% of the replacement cost value of, the house. However, to save $60 per year in his premium, he 'd only covered his possessions for their actual cash value. Given this information, Alexander can expect to receive only $___________ in compensation for his loss. In contrast, if he had carried replacement cost, instead of actual cash, coverage, then he would have received $_________.

- $2,700 - $9,000

2) Mia's two insurance policies Mia owns a house in Portland and carries two insurance policies on it. The first policy carries a policy limit of $125,000; the second carries a limit of $95,000. Given a covered loss of $6,000, the first policy will pay a maximum amount of $____________, and the second policy will pay a maximum of $___________.

- $3,409 - $2,591

10) Computing your liability - An auto insurance example Manuel's car was relatively unharmed by the collision but required 1,200 in minor repairs. Poornima's car was destroyed, making Manuel liable for paying the $10,400 replacement value. Poornima's car was pushed up onto a nearby sidewalk on impact, destroying a nearby lawn and causing additional damage to a parked car. This damage totaled $8,693. Manuel's liability coverage also will reimburse him for up to $____________ worth of property damage. Therefore, he is responsible for paying $_____ out-of-pocket in property liability damages. Which of the following is true regarding the damage to his own car? _____________________________________________.

- $50,000 - $0 - It will be reimbursed fully, minus the $500 deductible.

10) Computing your liability - An auto insurance example Manuel has a Personal Automobile Policy (PAP) that provides liability coverage with limits of $50/100/50, no medical payment insurance, and uninsured and underinsured motorist coverage with limits of $100/300. He has collision and comprehensive coverage, both of which have a $500 deductible. Suppose one day Manuel fails to notice a red light, causing him to blindside another car crossing the intersection. Fortunately, he is not badly injured, but the medical bill for his hospital examination nonetheless amounts to $1,938. The driver of the other car, a woman named Poornima, suffered severe injuries from the direct impact of the accident, requiring an initial surgery, an extended hospital stay, and additional physical therapy procedures for several subsequent months. The total of her medical bills, plus compensation for being unable to work for nearly a month, totaled $135,947. Poornima's insurance company successfully filed a claim against Manuel by exercising subrogation rights. Coverage A of Manuel's plan will reimburse him for $____________ of Poornima's medical bills. Manuel's medical bills _________________________________.

- $50,000 - are not covered by his policy

10) Computing your liability - An auto insurance example Paolo has a Personal Automobile Policy (PAP) that provides liability coverage with limits of $50/100/50, no medical payment insurance, and uninsured and underinsured motorist coverage with limits of $100/300. He has collision and comprehensive coverage, both of which have a $500 deductible. Suppose one day Paolo fails to notice a red light, causing him to blindside another car crossing the intersection. Fortunately, he is not badly injured, but the medical bill for his hospital examination nonetheless amounts to $1,938. The driver of the other car, a woman named Sharon, suffered severe injuries from the direct impact of the accident, requiring an initial surgery, an extended hospital stay, and additional physical therapy procedures for several subsequent months. The total of her medical bills, plus compensation for being unable to work for nearly a month, totaled $135,947. Sharon's insurance company successfully filed a claim against Paolo by exercising subrogation rights. Coverage A of Paolo's plan will reimburse him for $____________ of Sharon's medical bills. Paolo's medical bills ____________________________________.

- $50,000 - are not covered by his policy

5) Insuring a Condominium Valerie's parents own a condominium that they fully insured for the replacement value of $150,000. Last year a portion of their roof collapsed due to the weight of snow after a severe storm, rendering the condo uninhabitable for the month that it took to complete repairs. Based on the coverage details of their condominium form _________ insurance policy, the additional living expenses they incur as a result of the damage (such as the cost of staying in a hotel during the repairs) _______________________________________________________________________.

- HO-6 - will be reimbursed up to 40% of the personal property insurance

5) Insuring an Older Home Alyssa's parents live in the home a Georgian style home built in the early 1800s. Although the house is still standing, it has fallen into disrepair, and the cost of rebuilding it with the original style and quality would be extremely high. If their home were destroyed, Alyssa's parents would choose to rebuild a much more modest structure rather than try to restore it to it's original state, therefore they purchase a __________ form policy to provide __________________________ protection.

- HO-8 - actual-cash-value

12 Filing an Insurance Claim Kevin was recently in a serious automobile accident caused by another driver failing to stop at a red light. Although in the immediate aftermath of the accident he felt relatively unharmed, he later discovered that the accident caused internal bleeding requiring extensive medical care. The other driver took complete responsibility for the accident, and the two drivers were able to exchange contact and insurance information before Kevin was taken to the hospital. Kevin's passenger, who was not injured, called Kevin's insurance agent and filed a police report while still at the scene of the accident. A few months later, after being reimbursed for the damage to his car and an initial medical bill, Kevin signed a release accepting complete reimbursement from his and the other driver's insurance companies. Which of the following statements regarding Kevin's situation are correct? Check all that apply.

- Kevin should not have signed the release until he was certain that no additional medical treatment would be required as a result of his injuries.

2) What are the basic principles of property insurance? However, instead of protecting against every possible cause of loss, property insurance policies generally restrict their protection to carefully specified causes of loss and specifically exclude causes that the insurance companies don't wish or can't afford to cover. Which of the following are typical causes of loss that are usually limited or excluded from most homeowner's or automobile insurance policies? Check all that apply.

- Ordinary wear and tear - Mysterious disappearance - Mudslides - War - Earthquake - Rising water or flooding

2) What are the basic principles of property insurance? Property insurance policies are based on the principle of ____________________________, which maintains that an insured __________________ be enriched beyond his or her original financial condition as the result of a loss. This means that a policyholder cannot expect to receive ________ in compensation from the insurance company than _________________________________. As a result of this principle, property insurance policies often limit their reimbursement to the ____________ cash value of the damaged or destroyed property, which is calculated by subtracting the value of the item's ______________ depreciation from its current _________________________ cost. This depreciation is usually the result of ____________________________.

- indemnification - should not - more - his or her economic loss - actual - physical - replacement - wear and tear

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Kevin's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $44,820*** Kevin has a $58,000 HO-1 form insurance policy. No additional endorsements or floaters have been added to the policy. Therefore, the actual cash value (ACV) of his property ___ covered under this policy and the replacement cost of his property _________- covered.

- is - is not

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Antonio's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $56,026*** Antonio has a $50,000 HO-1 form insurance policy. No additional endorsements or floaters have been added to the policy. Therefore, the actual cash value (ACV) of his property __________ covered under this policy and the replacement cost of his property ___________ covered.

- is not - is not

8) Complete the following statements regarding the coverages provided by the PAP. • Underinsured motorists coverage is also available, and protects you, a policyholder, against damages caused by an at-fault or underinsured driver. If the at-fault driver causes _______ damage than the limit of his or her liability coverage, then your company will make up the difference, up to _________________________________, and then subrogates with the negligent driver.

- more - the limit of your policy

2) What are the basic principles of property insurance? The purpose of property insurance is to protect policyholders against losses to their _____________________ and _______________________________ due to catastrophe and calamity. These contracts require policyholders to identify and describe the property that is covered and to specify the causes of loss, called ______________, for which a policyholder will be compensated in the event of loss.

- real property - personal property - perils

8) Complete the following statements regarding the coverages provided by the PAP. • Collision coverage pays to repair the policyholder's vehicle ___________________________________. Lenders and lessors typically require this coverage, and unless replacement cost coverage is taken, the insurance company will pay only the vehicle's _______________________________________________________.

- regardless of who is at fault - actual cash value minus the deductible

11) Other types of insurance Raphael is a doctor with a standard HO-1 policy with $450,000 worth of insurance on his home, an auto insurance policy with liability limits of 100/300/50, and an additional professional liability policy that protects him against negligence and mistakes made only in his professional activities with a $500,000 limit. His daughter recently took a course in personal finance and wants to make sure her father is adequately protected from potential losses. Although she knows her father has all the standard policies, she describes a number of situations that aren't always covered under standard policies. For each of the scenarios that follow, indicate either (1) which of Raphael's current coverages already protect him or (2) the correct type of coverage that would protect him against the loss described. 1) An earthquake destroys the deck of the home, causing $20,000 worth of damage. 2) A burglar steals a piece of art (valued at $85,000) from his living room. 3) While he is on vacation, his laptop is stolen out of his hotel room.

1) Buy earthquake insurance 2) Already covered under HO-1 3) Floater policy

9) Saving money on your auto insurance - Good and bad decisions Latasha recently went online to review her auto insurance policy. Her policy is a Personal Automobile Policy and provides liability coverage with limits of $15/30/15, no medical payment insurance, and uninsured and underinsured motorist coverage with limits of $1/2. She has collision and comprehensive auto insurance, and both have a $100 deductible. Consider the following adjustments Latasha could make to her policy and the effect they would have on her monthly premium. Indicate whether each change would be worth the additional cost or cost savings by selecting "Yes" or "No" in the final column of the table. 1) Switch from limits of $15/30/15 to $250/500/250 - Effect on Premium 2) Switch from limits of $15/30/15 to $250/500/250 - Worth It? 3) Increase collision and comprehensive deductible to $1,000 - Effect on Premium 4) Increase collision and comprehensive deductible to $1,000 - Worth It? 5) Increase Coverage C - Effect on Premium 6) Increase Coverage C - Worth It?

1) Increase 2) Yes 3) Decrease 4) Yes 5) Increase 6) Yes

9) Saving money on your auto insurance - Good and bad decisions Amy recently went online to review her auto insurance policy. Her policy is a Personal Automobile Policy and provides liability coverage with limits of $100/300/100, $10,000 medical payment insurance, and uninsured and underinsured motorist coverage with limits of $1/2. She has collision and comprehensive auto insurance, and both have a $500 deductible. Consider the following adjustments Amy could make to her policy and the effect they would have on her monthly premium. Indicate whether each change would be worth the additional cost or cost savings by selecting "Yes" or "No" in the final column of the table. 1) Switch from limits of $15/30/15 to $250/500/250 - Effect on Premium 2) Switch from limits of $15/30/15 to $250/500/250 - Worth It? 3) Increase collision and comprehensive deductible to $1,000 - Effect on Premium 4) Increase collision and comprehensive deductible to $1,000 - Worth It? 5) Increase Coverage C - Effect on Premium 6) Increase Coverage C - Worth It?

1) Increase 2) Yes 3) Increase 4) No 5) Decrease 6) No

8) Read each of the following situations and determine if each is covered by the standard protections provided by the PAP. 1) Valerie decided to save money by reducing the amount of liability coverage provided by her policy. She carries only the state-minimum required coverage but had an accident that is expected to cost three times that limit. Will her policy cover the additional costs of the accident? 2) Antonio carries $10,000 per person in medical payments coverage and was struck by a car while walking down the street with four friends. Can he seek reimbursement for his medical expenses under his PAP? 3) While driving drunk, Shen struck two pedestrians and damaged two cars. He was charged with several criminal offenses. Will his PAP pay for his defense against these charges? 4) While shopping for Christmas, Caroline placed several bags of presents in the trunk and then went back into the mall. Five minutes after she walked away from the car, thieves broke into the trunk and stole the presents. Will her PAP pay to replace the presents?

1) Not Covered 2) Covered 3) Not Covered 4) Not Covered

3) What are the different forms of the homeowner's policy? Homeowners have four forms of homeowner's policies (HO-1, HO-2, HO-3, and HO-8), whereas renters and owners of condominiums have two forms (HO-4 and HO-6). Although there are differences in the coverages provided by the different policies, their formats tend to be the same. Consider the following statements regarding the format of a homeowner's policy 1. Homes made of brick located in areas with low crime rates and frequent fire hydrants are more likely to experience relatively high premiums, all other things being equal. 2. Section II of the homeowner's policy applies to the dwelling, adjacent structures, and the insured's personal property. 3. A homeowner's policy also protects the trees, plants, and lawn around an insured's home against certain perils. 4. Comprehensive policies provide protection against all perils except for those that are specifically excluded. 5. An HO-8 policy protects your personal property against the same covered perils as are specified in the HO-1 policy.

Statements 3, 4, and 5

2) The basic principles of property insurance Property insurance companies retain several rights and can impose several requirements on its policyholders. Among them are: - After it has paid a claim, the right of the __________________________ to request reimbursement from either the person who caused the loss or that person's insurance company. This is called the right of ________________. - The requirement of ______________________, which ______________ a policyholder to buy insurance in an amount equal to a specified percentage of the _______________________ of the property. - The ____________________________ clause, which states that if a person has more than one insurance policy, then each company is liable for ____________________________ amount of the loss based on its proportion of the total insurance covering the property.

- insurance company - subrogation - co-insurance - requires - replacement cost - other-insurance - only a proportional

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Antonio's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $56,026*** One of his more valuable items is a shotgun he uses for duck hunting. He purchased the shotgun 4 years ago for $1,770, and the total life expectancy is 10 years. The shotgun he uses for duck hunting would cost $1,900 if it was purchased today. The actual cash value (ACV) of the shotgun is $___________.

$1,192

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Kevin's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $44,820*** One of his more valuable items is a custom electric guitar he purchased when his band starting gaining popularity. He purchased the guitar 6 years ago for $2,500, and the total life expectancy is 10 years. The custom electric guitar he purchased when his band starting gaining popularity would cost $2,800 if it was purchased today. The actual cash value (ACV) of the guitar is $___________.

$1,300

5) Insuring a Standard Home Valerie: Her home has a replacement value of $250,000, therefore she insures her home for the minimum legal requirement of $_________________. Assuming she does not purchase any additional coverage beyond the legal minimums, complete the following table indicating the maximum dollar value of reimbursement she can receive for each of the following: 1) Damage to personal property: 2) Detached buildings: 3) Loss of Use (Additional living expenses): 4) Property damage:

$200,000 1) $100,000 2) $20,000 3) $40,000 4) $500

5) Insuring a Standard Home Alyssa: Her home has a replacement value of $300,000, therefore she insures her home for the minimum legal requirement of $_____________. Assuming she does not purchase any additional coverage beyond the legal minimums, complete the following table indicating the maximum dollar value of reimbursement she can receive for each of the following: 1) Damage to personal property: 2) Detached buildings: 3) Loss of Use (Additional living expenses): 4) Property damage:

$240,000 1) $120,000 2) $1,000 3) $24,000 4) $100,000

6) Actual Cash Value versus Replacement Cost Coverage The following table gives a partial list of Nick's significant property (that is, although only the first three items are listed within each category, the totals at the bottom of the table include the prices of unlisted property items). ***Chart where "Total - Replacement Cost" = $33,616*** One of his more valuable items is a camera he uses for his hobby as a photographer. He purchased the camera 2 years ago for $3,650, and the total life expectancy is 10 years. The camera he uses for his hobby as a photographer would cost $4,000 if it was purchased today. The actual cash value (ACV) of the camera is $__________.

$3,270

7) Brian's Replacement Cost Coverage Brian recently purchased a $96,000 broad form HO-2 policy with no deductible. A year later, his roof is damaged by a windstorm and he suffers a loss of $76,800. If the replacement value of Brian's house is 160,000 and the insurance policy includes a replacement cost requirement of 80%, he will receive a reimbursement of $__________________.

$57,600

4) What coverages are provided in a homeowner's policy? Suppose your garage and gardening were recently damaged by a thunderstorm. The buildings were built 4 years ago for $9,000, were expected to have a useful life of 12 years, and if built today would cost $12,000. Actual cash value, rather than, replacement cost coverage is carried on the structures, and the insured carries a $0 deductible. What is the maximum compensation available under your homeowner's policy for this loss?

$9,000

10) Computing your liability - An auto insurance example Felix's car was relatively unharmed by the collision but required 800 in minor repairs. Janet's car was destroyed, making Felix liable for paying the $9,300 replacement value. Janet's car was pushed up onto a nearby sidewalk on impact, destroying a nearby lawn and causing additional damage to a parked car. This damage totaled $7,254. Felix's liability coverage also will reimburse him for up to $_______________ worth of property damage. Therefore, he is responsible for paying$1,554 out-of-pocket in property liability damages. Which of the following is true regarding the damage to his own car? _____________________________________________.

- $15,000 - $1,554 - It will be reimbursed fully, minus the $100 deductible

5) Insuring a Standard Home Cho: Her home has a replacement value of $300,000, therefore she insures her home for the minimum legal requirement of $_______________. Assuming she does not purchase any additional coverage beyond the legal minimums, complete the following table indicating the maximum dollar value of reimbursement she can receive for each of the following: 1) Damage to personal property: 2) Detached buildings: 3) Loss of Use (Additional living expenses): 4) Property damage:

- $240,000 1) $120,000 2) $1,000 3) $48,000 4) $500

11) Other types of insurance Alex is a doctor with a standard HO-2 policy with $400,000 worth of insurance on his home, an auto insurance policy with liability limits of 100/300/50, and an additional professional liability policy that protects him against negligence and mistakes made only in his professional activities with a $500,000 limit. His daughter recently took a course in personal finance and wants to make sure her father is adequately protected from potential losses. Although she knows her father has all the standard policies, she describes a number of situations that aren't always covered under standard policies. For each of the scenarios that follow, indicate either (1) which of Alex's current coverages already protect him or (2) the correct type of coverage that would protect him against the loss described. 1) A flood destroys the basement of the home, causing $20,000 worth of damage. 2) Vandals destroy the shed in his backyard; the damages total $5,800. 3) The camera is stolen from inside his car.

1) Buy flood insurance 2) Already covered under HO-2 3) Floater policy

4) What coverages are provided in a homeowner's policy? In general, the method of calculating the basic limits specified in Parts B through D of a homeowner's policy involves multiplying Part A limit by:

10%, 50%, and 10-20%, respectively

3) What are the different forms of the homeowner's policy? An individual who owns an extensive art collection or furs or fine art that is worth more than the traditional coverage provided by Part C of the homeowner's policy receives better protection using which of the following insurance products?

A scheduled personal property floater

4) What coverages are provided in a homeowner's policy? What is the term used to describe the dollar amount of a physical damage claim paid by the policyholder?

Deductible

9) Saving money on your auto insurance - Good and bad decisions Suppose that Latasha gets quotes from other auto insurance companies and finds that one company offers the same coverage as her current plan, but for $15 less per month. True or False: Rates do not vary substantially across policies with identical coverage; therefore, you can assume that Latasha's current company offers a higher quality of service and/or coverage than the other company.

False

5) Insuring a Standard Home Alyssa is the owner of a 2-year-old home, and is looking to buy a homeowner's insurance policy. She is primarily concerned with protection from standard property damaging perils that she has no way of preventing, such as those due to fire, vandalism, windstorms, and so on, and less concerned about those that she feels she can prevent through frequent maintenance (such as damage caused by malfunctioning of internal structures like air conditioning or plumbing). Based on the peril coverage it offers, she purchases an ________ insurance policy.

HO-1

5) Insuring a Standard Home Valerie is the owner of a 15-year-old home, and is looking to buy a homeowner's insurance policy. She feels it would be overly cautious to purchase protection from all perils, but in addition to protection from fire, vandalism, windstorms, and so on, she also wants insurance for damage caused by malfunctioning of internal structures like air conditioning or plumbing. Based on the peril coverage it offers, she purchases an __________ insurance policy.

HO-3

11) Other types of insurance In addition to these policies, Alex is considering an umbrella liability insurance policy with a limit of $1 million. Which of the following statements regarding umbrella policies is true?

If Alex's mother-in-law trips on a broken step on his porch and suffers injuries that require $120,000 worth of medical care, his umbrella policy will cover the difference between the total cost and what the HO-2 covers.

3) What are the different forms of the homeowner's policy? Homeowners have four forms of homeowner's policies (HO-1, HO-2, HO-3, and HO-8), whereas renters and owners of condominiums have two forms (HO-4 and HO-6). Although there are differences in the coverages provided by the different policies, their formats tend to be the same. Consider the following statements regarding the format of a homeowner's policy. 1. The HO-1, HO-2, HO-3, and HO-8 policies differ in the breadth of their coverages, with HO-1 offering the greatest protection and HO-3 offering the least amount of coverage. 2. Homeowner's policies provide protection and compensation for direct and indirect losses, and specified additional expenses resulting from their occurrence. 3. The HO-4 and HO-6 policies provide only personal effects coverage because the insured doesn't own the premises. 4. Acts for which the insured is negligent are often excluded from the comprehensive personal liability coverage. 5. Part F of Section II provides medical payments coverage for certain types of minor accidents involving persons other than the homeowner's family members in or around the home and off premises. The following statements are true:

Statements 2 and 5

1) Principle of Indemnity

This concept maintains that an insured should not benefit excessively from having insurance coverage and should not be compensated for more than his or her economic loss. maintains that an insured should not be compensated by an insurance company for an amount greater than his or her economic loss.

1) Property Insurance

This insurance coverage protects your home or automobile against damage and theft. protects real and personal property from catastrophic loss by a variety of causes, such as fire and weather events.

1) Claims Adjuster

This insurance specialist investigates claims on behalf of an insurance company. an insurance specialist who investigates claims on behalf of an insurance company. The adjustor can work either as an independent adjustor or for an adjustment bureau.

8) D. This part in the PAP provides two types of optional protection: ____________________ coverage and ________________ coverage.

Vehicle Damage Coverage - comprehensive - collision

8) Complete the following statements regarding the coverages provided by the PAP. • Insurance companies can express their liability coverage using either a combined limit or split limits. If a split limit is used, such as $100,000/$300,000/$100,000, then the third term in the limit expresses the maximum dollar amount that the insurance company will pay for ___________________________________.

the maximum amount paid for all vehicles damaged in the accident

3) What are the different forms of the homeowner's policy? Homeowners have four forms of homeowner's policies (HO-1, HO-2, HO-3, and HO-8), whereas renters and owners of condominiums have two forms (HO-4 and HO-6). Although there are differences in the coverages provided by the different policies, their formats tend to be the same. Consider the following statements regarding the format of a homeowner's policy. 1. Homes made of brick located in areas with low crime rates and frequent fire hydrants are more likely to experience relatively high premiums, all other things being equal. 2. Section II of the homeowner's policy applies to the dwelling, adjacent structures, and the insured's personal property. 3. A homeowner's policy also protects the trees, plants, and lawn around an insured's home against certain perils. 4. Comprehensive policies provide protection against all perils except for those that are specifically excluded.5. An HO-8 policy protects your personal property against the same covered perils as are specified in the HO-1 policy. The following statements are true:

Statements 3, 4, and 5

1) Peril

This refers to the term used to describe the cause of a loss. the cause of a loss. An example of a peril is a fire, an act of vandalism, or a windstorm.

9) Saving money on your auto insurance - Good and bad decisions Suppose that Amy gets quotes from other auto insurance companies and finds that one company offers the same coverage as her current plan, but for $15 less per month. True or False: Rates can vary substantially across policies with identical coverage; therefore, Amy should consider switching to the cheaper company.

True