fin 230 final exam review session brian alvin, kathy gu, eric lam, neal simons, bill schneider, and...

FIN 230 Final Exam Review Session

Brian Alvin, Kathy Gu, Eric Lam, Neal Simons, Bill Schneider, and PC Wong

Final Exam Locations

Tuesday, December 11, 2007 – 8-11 AM

VERY IMPORTANT – You must take the exam in the right room!

Show up on time! Late arrivals may not be allowed to take the exam.

Last Name Begins Exam RoomA-O 141 Wohlers HallP-Te 2 EducationTh-Z 166 Education

Final Exam

Exam is open-book, open note Exam will consist of 40 multiple choice

questions Bring to the exam:

#2 Pencils Calculator Car and Health Policies Textbook for Life and Homeowners policies

and the mortality table (Appendices A, E and F)

Study Tips Organize your notes, homework, and exams

Know exactly where things are that you will need to reference

Redo all of the homework Go through and rework every question Go online to see each question explained Think critically about each question and how the

answer would change if certain things in the question changed

Write down a summary of all the exclusions, or where to find them for each policy

Homework #1 Review

State Farm Car Policy:Your Use of Your Car

Auto Policy 1

You are backing out of your driveway when you hit your mailbox and an oncoming car. Your mailbox incurs $500 of damage, your car costs $2,100 to repair, and the other car costs $2,400 to repair. The driver of the other car incurs $2,000 of medical bills and is entitled to a $20,000 bodily injury reward. Your auto policy will pay:A. $0 B. $6,400 C. $27,400D. $27,900 E. None of the above

Auto Policy Answer 1

E. None of the above - $24,400

Your mailbox is not covered becauseyour auto policy does not cover damages to your property. 2,000 Collision (2,100 – 100 Deductible)+ 2,400 Property Damage+ 20,000 Bodily Injury Liability (includes med bills) 24,400

Auto Policy 2

Your car is stolen, and you immediately report this to State Farm. You rent a car for $30 a day. State Farm offers to pay you for the loss 8 days after it was stolen. The ACV of your car was $12,000. Your auto policy will pay:A. $0B. $12,000C. $12,200D. $12,240E. None of the above

Auto Policy Answer 2

C. $12,200If your car is stolen, your policy will

pay up to $25 per day for transportation costs.

25*8= 200+ 12,000 Comprehensive12,200

Homework #2 Review

State Farm Car Policy: Uninsured/Underinsured

Un(der)insured Basics• Only covered for un(der)insured in United States and its

territories or Canada

• Un(der)insured covers only bodily injury for you and people in your car

• If you are not hit by a hit and run driver, your uninsured coverage will not pay!

• Underinsured will only pay to bring the total coverage of the other driver to 100,000

• This includes the driver’s existing coverage• Ie. Driver with 15,000 bodily injury liability coverage hits

you. Your underinsured will cover up to 85,000 (100,000-15,000)

Un(der)insured Basics (cont.)• You can get both un(der)insured coverage and

medical payments coverage for the same accident

• Medical payments pays first• Any remaining bodily injury award will be covered

under your un(der)insured coverage• Example:

• You are hit by an uninsured driver and incur 10,000 in medical bills. You sue the driver and are entitled to a 200,000 bodily injury award.

• Medical payments coverage will pay 10,000• 200,000-10,000 = 190,000 in bodily injury remains• Your insured coverage has a limit of 100,000• So in total, your policy will pay 10,000 (med) +

100,000 (uninsured) = 110,000

Problem #1While driving your car in California after seeing the Illini demolish the Trojans, you are hit by a car and severely injured. You incur $40,000 in medical bills and are entitled to a $180,000 bodily injury award but the other driver only has 25/50/100 in coverage. Your car costs $11,000 to repair.

a) 25,000b) 100,000c) 125,000d) 135,900e) None of the above

Problem #1 - Answer

Correct answer: B

The other driver will pay the entire cost to repair your car. He will also pay $25,000 of your bodily injury award.

Medical: 40,000 25,000 (limit)Underinsured:180,000 - 25,000 – 25,000 = 130,000

75,000 (limit) (100,000 – 25,000)

Total: 100,000

Problem #2You are walking to your FIN 230 Final when one of your classmates, afraid of being late, comes speeding down the street and hits you. You incur $40,000 in medical bills and would be entitled to a $200,000 bodily injury award but the other student is uninsured.a) 0b) 25,000c) 40,000d) 125,000e) None of the above

Problem #2 - Answer

Correct answer: D

Both medical and un(der)insured coverage apply if you a struck by a motor vehicle as a pedestrian

Medical: $25,000 in medical coverage Uninsured: $200,000 - $25,000 =

$175,000, but $100,000 limitTotal: $25,000 + $100,000 = $125,000

Homework #3 Review

State Farm Car Policy:- Your Use of Other Cars- Other People’s Use of Your Car- Other People’s Use of Other Cars

HW #3 Question 1Your 17 year old son Allen, who lives with you, borrows your car one evening. Unknown to you, he lets his 15 year old girlfriend drive your car. She obviously needs practice, since she backs into a gas pump, damaging the pump and starting a fire that destroys the gas station and your car. Fortunately, neither Allen nor his girlfriend is injured in the accident. It costs $1,275,000 to repair the gas station. Your car has an ACV of $12,000.A) 0 B) $12,000 C) $111,900D) $1,287,000 E) None of the above

HW #3 Answer 1

You are covered because it is your car. If you were driving your son’s car it would not be covered. You driving Allen’s girlfriend’s car would be covered.

$100,000 Property Liability$12,000 Comprehensive$112,000Comprehensive b/c fire destroys car

not accident.

HW #3 Question 2Your 18 year old daughter Sarah, who lives with you, borrows your car one day to go shopping with her friends. On the way to the mall they are involved in an accident that is Sarah’s fault. Two of her friends are seriously injured. One incurs medical bills of $15,000 and is entitled to a bodily injury award of $30,000. The other incurs medical bills of $45,000 and is entitled to a bodily injury award of $135,000. Your daughter is not injured in the accident, but she is ticketed for running a red light and fined $300.A) 0 B) $40,000C) $130,000D) $155,000 E) None of the above

HW #3 Answer 2

Covered b/c it is your car. Fine is not covered

$30,000 Bodily Injury Liability$125,000 Bodily Injury Liability (limit

$100,000) and Medical Payments

$155,000 Total

Homework #4 Review

- Introduction to Risk and Insurance- Fundamental Doctrines of Insurance- Insurance Contracts

Problem #1You see a commercial on TV advertising identity theft protection. The protection will cost you $50 a year. Your odds each year of being a victim of identity theft are 1 out of 100. The expected loss from identity theft is $4,500. Which of the following risk types would purchase this coverage?

I Risk averseII Risk neutral III Risk seeker

A. I only B. I and II only C. II and III onlyD. I, II, and III E. None of the above

Problem #1 - Answer

Answer: A. I only Explanation: Expected loss = frequency *

severity =.01 * $4,500

=$45

The identity theft protection costs $50, which is greater than the $45 expected loss. Therefore, a risk averse individual would purchase this coverage.

Problem #2You are on vacation in the Bahamas and want to go scuba diving. Before you are allowed to go on your first dive, you must take a training course to avoid drowning. Which method of handling pure risk does this training course demonstrate?

A. Avoidance B. Transfer C. Loss prevention D. Morale hazard E. Societal hazard

Problem #2 - Answer Answer: C. Loss prevention Explanation:

Loss prevention – reduces the probability/frequency of a loss

Avoidance – usually not practical, means avoiding the activityTransfer – Shifting the risk, often from a financial aspect, to another partyLoss reduction – reduces the severity of a lossRetention – when the risk is maintained and not

shifted to another party

Problem #3

You, a 21 year old senior are at the Rose Bowl, and you see your 23 year old co-worker Moe. You ask him if he can cover your shift at the Law Library next Friday afternoon. In return, you will pay him $20. He agrees to the deal but you do not notify your manager. However, Moe fails to show up to work next Friday afternoon, and you are fired for your absence. You sue Moe for the loss of your job. Which, if any, of the requirements for a contract would be missing?

A. Offer and acceptance B. Consideration C. Competent parties D. Legal purpose E. None are missing

Problem #3 - Answer Answer: E. None are missing Explanation: Offer and acceptance – You make an offer and your co-worker accepts

Consideration – You get a day off, and you give your co-worker $20

Competent parties - You and your co-worker have reached majority, are of sound mind, and are not intoxicated

Legal purpose – Having a co-worker fill-in for you is a

legal activity

Legal form - ???

Homework #5 Review

- Introduction to Risk and Insurance- Buying Insurance

Question 1

Based on the large loss principle, which of the following is the least important coverage in your State Farm Car Policy?

A. CollisionB. ComprehensiveC. LiabilityD. Emergency Road ServiceE. Un(der)insured

Question 1 - Answer

Based on the large loss principle, which of the following is the least important coverage in your State Farm Car Policy?

A. CollisionB. ComprehensiveC. LiabilityD. Emergency Road ServiceE. Un(der)insured

Question 2Your neighbor, who has his own insurance policy with Allstate with the same coverages you have with your State Farm Policy, borrows your car and runs into a tree, causing $2500 in damage to your car. Which of the following provisions keeps you from collecting for this loss under both your policy and your neighbor’s

A. Lack of an insurable interestB. SubrogationC. Other insurance provisionD. EstoppelE. none of the above

Question 2 - AnswerYour neighbor, who has his own insurance policy with Allstate with the same coverages you have with your State Farm Policy, borrows your car and runs into a tree, causing $2500 in damage to your car. Which of the following provisions keeps you from collecting for this loss under both your policy and your neighbor’s

A. Lack of an insurable interestB. SubrogationC. Other insurance provisionD. EstoppelE. none of the above

Question 3

Which of the following is the best reason that the State Farm Car Policy excludes coverage for driving in Europe?

A. To make the policy economically feasible

B. To standardize the riskC. To reduce the risk of a catastropheD. To avoid losses that are not fortuitousE. Because this is a contract of adhesion

Question 3 - Answer

Which of the following is the best reason that the State Farm Car Policy excludes coverage for driving in Europe?

A. To make the policy economically feasible

B. To standardize the riskC. To reduce the risk of a catastropheD. To avoid losses that are not fortuitousE. Because this is a contract of adhesion

Homework #6 Review

U of I Student Health Insurance Policy

Deductibles

In-patient $100 per injury No ER deductible

Outpatient $150 per policy year ER deductible: $50 per visit

Exclusions Page 14 Acupuncture Learning disabilities Cosmetic

Procedures… Dental treatment… Elective surgery Eye exams… Foot care… Immunizations… Injury cause from

alcohol…

Organ transplants Participation in riots… Prescription drugs… Routine physical

exams… Skeletal irregularities Sleep disorders Suicide or attempted

suicide… Weight

management…

Limits

$200,000 for each injury or sickness $75,000 for intercollegiate, club,

and intramural sports $20,000 lifetime maximum for

Psychiatric and Drug Abuse Treatment Inpatient – same as other sickness Outpatient – 50% of charge up to a max

of $35 for 45 days max per policy year

In-Hospital Expense Benefit

$100 Deductible, then 80% of the first $10,000, then 100% of the balance of room and board and in-hospital expenses

In-hospital expenses includes: Operating room Drugs Blood and blood plasma X-ray examinations Radiation treatments Laboratory tests Surgical dressings Medical supplies while Hospital confined

Inpatient - Benefit shall be 80%...

Surgery Assistant Surgeon Anesthesia Ambulance Durable Medical Equipment

Diagnostic Procedure Expense Benefit

Lower of 80% of usual and customary or actual charges subject to limits of: CT Scans: $800 MRI: $1,200 Nuclear imaging: $782

Question 1

You fall and hit your head on your desk. Your roommate calls an ambulance to drive you to the emergency room. The doctor runs a CT scan. The test confirms that you are okay, just a bad bump. You are billed $100 for the ambulance, $1200 for the CT, and $400 for the emergency room visit.

A. $1040 B. $1080 C. $1120 D. $1200 E. None of the above

Question 1 - Answer

You fall and hit your head on your desk. Your roommate calls an ambulance to drive you to the emergency room. The doctor runs a CT scan. The test confirms that you are okay, just a bad bump. You are billed $100 for the ambulance, $1200 for the CT, and $400 for the emergency room visit.

A. $1040 B. $1080 C. $1120 D. $1200 E. None of the above

CT Scan: Lower of: 1200*0.80 = 960 or 800Ambulance: 100*0.80 = 80ER visit: 400-150-50=200*0.80 = 160800+80+160 = 1040

Question 2You badly injure your ankle while rollerblading. You are hospitalized for 6 days and have surgery. You are billed $500 per day for hospital room and board, $10,000 for x-rays, $10,000 for the surgeon, $2,500 for the assistant surgeon and $4,000 for the anesthesia (which is administered by a licensed Physician who remained in constant attendance during your operation).

A. 0 B. $12,050 C. $24,100 D. $24,500 E. None of the above

Question 2 - AnswerYou badly injure your ankle while rollerblading. You are hospitalized for 6 days and have surgery. You are billed $500 per day for hospital room and board, $10,000 for x-rays, $10,000 for the surgeon, $2,500 for the assistant surgeon and $4,000 for the anesthesia (which is administered by a licensed Physician who remained in constant attendance during your operation).

A. 0 B. $12,050 C. $24,100 D. $24,500 E. None of the above

Question 2 - ExplanationIn-Hospital Expense BenefitRoom and Board $500 x 6 3,000$ X-Rays 10,000$

13,000$ Deductible (100)$

12,900$

80% of first $10,000 10000*0.80 = 8000 8,000$ Excess of $10,000 2,900$

10,900$

Surgeon 10,000$ x 0.80 8,000$ Assistant 2,500$ x 0.80 2,000$ Anesthesia 4,000$ x 0.80 3,200$

13,200$

13200 + 12900 = 24100

Question 3

You visit a licensed clinical psychologist once a week for ten weeks during the semester. You are charged $80 per visit.

A. 0 B. $160 C. $350D. $400 E. None of the above

Question 3 - Answer

You visit a licensed clinical psychologist once a week for ten weeks during the semester. You are charged $80 per visit.

A. 0 B. $160 C. $350D. $400 E. None of the above

10 total visits * Lesser of( $35 or 50% of $80) = 10 * $35 = $350

Homework #7 Review

Coordination of BenefitsIntroduction to Life Insurance

Question 1

An insurance company with a complaint ratio of 10.00 means:

A. It is insolventB. One complaint has been filed for every 10

policies issuedC. One out of every ten complaints that has

been filed is a valid complaintD. Ten complaints have been filed for every 1

million of premiums writtenE. None of the above

Question 1 - Answer

An insurance company with a complaint ratio of 10.00 means:

A. It is insolventB. One complaint has been filed for every

10 policies issuedC. One out of every ten complaints that has

been filed is a valid complaintD. Ten complaints have been filed for

every 1 million of premiums writtenE. None of the above

Question 2

Which of the following policies would have the largest first year premium for a 50 year old male?

A. 20 year level term lifeB. Straight lifeC. Whole life paid up at 65D. Yearly renewable termE. 10 payment whole life

Question 2 - Answer

Which of the following policies would have the largest first year premium for a 50 year old male?

A. 20 year level term lifeB. Straight lifeC. Whole life paid up at 65D. Yearly renewable termE. 10 payment whole life

Question 3

Which of the following types of life insurance can provide funds for retirement?

A. Yearly renewable termB. Re-entry termC. Endowment lifeD. 10 year deferred term lifeE. None of the above

Question 3 - Answer

Which of the following types of life insurance can provide funds for retirement?

A. Yearly renewable termB. Re-entry termC. Endowment lifeD. 10 year deferred term lifeE. None of the above

Homework #8 Review

Life Insurance

Table of Guaranteed Values Cash Value

Take money and no more insurance Paid-Up Insurance

Get that amount when you die $100,000 Extended Term Insurance

Get $100k when you die before that date

End of Policy Year

August 1, Cash ValuePaid-Up

Insurance

$100,000 Extended

Term Insurance to

10 2005 11,411 37,400 Oct 13, 2023

11 2006 12,933 40,600 Aug 15, 2025

Whole Life Policy

Policy becomes Extended Term if stopped payment of premiums and no decision

Misstatement of Age and Sex Would adjust benefit accordingly

Incontestability Issue Caught within 2 years

Suicide Return premium if within 1 year Otherwise treated as normal death

Minimum Payment tables Numbers tell you how much per

thousand you will receive monthly Example: Upon death your policy pays $37,400. Wife has adjusted age of 64 and want 20

years certain Chart shows $4.57 There are 37.4 thousands 37.4 * 4.57 = $170.92 = Monthly benefit

Homework #9 Review

Life Insurance Cost ComparisonsLiability Exposures

Life Insurance Cost Comparisons

Traditional Net Cost Interest-Adjusted Net Cost Methods

Surrender Cost Index Net Payment Cost Index Equivalent Level Annual Dividend

Yearly Rate of Return Method

Question 1You are decorating your house for the holidays, so you display your favorite reindeer decoration on your front lawn. Your next door neighbor wasn’t watching his 5 year old son closely enough, and he wanders into your yard and hurts himself on the pointy edges from the reindeer’s antlers. You could be held liable based on which of the following?

 A.Common law B. Contributory negligenceC. Comparative negligenceD. Attractive nuisance E. None of the above

Question 1 - AnswerYou are decorating your house for the holidays, so you display your favorite reindeer decoration on your front lawn. Your next door neighbor wasn’t watching his 5 year old son closely enough, and he wanders into your yard and hurts himself on the pointy edges from the reindeer’s antlers. You could be held liable based on which of the following?

 A.Common law B. Contributory negligenceC. Comparative negligenceD. Attractive nuisance E. None of the above

Question 2

Which of the following costs incurred by a plaintiff in a bodily injury claim would represent general damages?I. Hedonic lossesII. Loss of companionshipIII. Pain and sufferingIV. Hospital bills

V. Loss of wagesA. I only B. I and II C. I, II and IIID. IV and V E. None of the above

Question 2 - Answer

Which of the following costs incurred by a plaintiff in a bodily injury claim would represent general damages?I. Hedonic lossesII. Loss of companionshipIII. Pain and sufferingIV. Hospital bills

V. Loss of wagesA. I only B. I and II C. I, II and IIID. IV and V E. None of the above

Homework #10 Review

Homeowner’s Policy

Homework #10 Tips

Read the policy carefully Remember the basic exclusion and

perils, and you should be good Make sure you know the Perils

Insured Against on pgs. 672-6754 and the Section I Exclusions on pgs. 674-675 of your textbook

Problem #1At your local polling place, you encounter a long line. Someone tried to cut in front of your causing a scuffle. During the scuffle, and elderly man behind you in line was knocked over. This man sues you and wins a bodily injury award of $20,000. Back home you realize the line cutter was part of a pick-pocketing ploy. Your wallet which contained $600 is missing.

A. $0 B. $350 C. $20,000 D. $20,350 E. None of the above

Problem #1 - Answer Answer: E. None of the above. Explanation:

HomeownersPersonal Property Personal Liability$600 → cash $20,000 → bodily injury award

-250 → deductible

$350

↓

$200 → limit on cash

Total

$20,000 → personal liability

+ 200 → personal property

$20,200 → Total

Problem #2Assume you have the auto and homeowners policies we use in class

An uninsured student pilot on his way back to Willard airport loses control and crashes into your attached garage. It costs $30,000 to fix the garage, $10,000 to repair your car (ACV $8,000) and $6,000 to repair your spouse’s car (ACV $4,000).

A. $19,750 B. $37,750 C. $38,000 D. $80,000 E. None of the above

Problem #2 - Answer Answer: B. $37,750 Explanation:Homeowners AutoDwelling Comprehensive$30,000 → garage $8,000 → Your car’s ACV

- 250 → deductible

$29,750

Total

$29,750 → Homeowners

+ 8,000 → Auto

$37,750 → Total

Problem #3 Assume you have the auto, health, and homeowners policies

we use in class. You clean out your fireplace and accidentally drop some

smoldering ashes on your carpet, starting a fire. The fire destroys your house and all your possessions, including your car. You suffer minor burns as you battle the blaze before the fire department from the next town over arrives. It costs $125,000 to rebuild your house, the ACV of your personal property was $40,000, and the ACV of your car was $12,000. You are billed $450 for your visit to the hospital emergency room, and $900 for the fire department service charge. You pay $8,000 to live in an apartment for 6 months while your house is rebuilt.

A. $160,450 B. $160,700 C. $160,950 D. $161,900 E. None of the above

Problem #3 - Answer Answer: B. $160,700 Explanation:Homeowners AutoDwelling Comprehensive$125,000 → rebuilding cost $12,000 → ACV car- 250 → deductible$124,750 Health ↓ $450 → visit to hospital ER$100,000 → policy limit -150 → outpatient deductible

- 50 → outpatient ER deductiblePersonal Property $250 $40,000 → ACV personal property X .8 → 80% of usual/actual charge

$200FD service charge$900 → service charge Total ↓ $148,500 → Homeowners$500 → charge limit + 12,000 → Auto

+ 200 → HealthLoss of Use $160,700 → Total$8,000 → loss of use

Homework #11 Review

Managing Life and Heath RisksSocial Security

For the following question:

Assume there are no other allowable deductions, charitable gifts, adjustable taxable gifts, state estate tax credits, previously paid estate and gift taxes or foreign death taxes. Use the attached Unified Rate Schedule to determine the total Federal estate tax owed on all of the estates.

Question 1

A married man dies in 2007 with a gross estate of $4,040,000. His funeral expenses are $30,000. He leaves $3,000,000 to his wife and $1,010,000 to his son. His wife dies later in 2007 with a gross estate of $3,000,000 (the amount she inherited from her husband). Her funeral expenses are $40,000, and she leaves $2,960,000 to her son.

A. $0 B. $432,000 C. $477,000D. $781,900 E. None of the above

Column A Column B Column C Column D

Taxable amount over Taxable amount not over Tax on amount in column A Rate of tax on excess over amount in

column A

      (Percent)

0 $10,000 0 18

$10,000 20,000 $1,800 20

20,000 40,000 3,800 22

40,000 60,000 8,200 24

60,000 80,000 13,000 26

80,000 100,000 18,200 28

100,000 150,000 23,800 30

150,000 250,000 38,800 32

250,000 500,000 70,800 34

500,000 750,000 155,800 37

750,000 1,000,000 248,300 39

1,000,000 1,250,000 345,800 41

1,250,000 1,500,000 448,300 43

1,500,000 2,000,000 555,800 45

2,000,000 - - - - - - - - 780,800 45

Question 1 - AnswerB. $432,000HIS Estate Taxes 4,040,000 Gross Estate - 30,000 Funeral Expenses Deduction-3,000,000 Marital Deduction 1,010,000 Tax Computation Base345,800 + 0.41*(10,000) = 349,900 Tentative Federal

Estate Tax- 780,800 Unified Credit $0 Federal Estate Tax Due

HER Estate Taxes 3,000,000 Gross Estate - 40,000 Funeral Expenses Deduction 2,960,000 Tax Computation Base780,800 + 0.45*(2,960,000-2,000,000) = 1,212,800

Tentative Federal Estate Tax- 780,800 Unified Credit $432,000 Federal Estate Tax Due

Question 2

You are single and you earn $165,000 in 2007. What are the total Social Security taxes paid by both you and your employer?

A. $0 B. $8,437.50 C. $16,875

D. $25,245 E. None of the above

Question 2 - Answer

C. $16,875Current (2007) payroll tax is 7.65% of

first $97,500 in earnings plus 1.45% of any additional earnings. The employer and the employee both pay this amount.

Employer and employee each pay: 0.0765 * 97500 + 0.0145(165,000 –

97,500) = 8,437.502 * 8,437.50 = $16,875

Question 3

Who or what determines the distribution of an individual’s estate when he or she dies intestate?

A. State lawB. Federal LawC. BeneficiaryD. His/her spouseE. None of the above

Question 3 - Answer

A. State lawRefer to Chapter 22 of text. Pg 539: If you die intestate, your

estate is distributed in accordance w/ the laws of the state in which you were a resident. Your state’s division may be quite difference from your wishes.

Question 4

What is the name of a trust that establishes conditions that must be met in order for the beneficiaries to be entitled to receive the proceeds from your estate?A. Testamentary trustB. Inter vivos trustC. Family incentive trustD. Living trustE. None of the above

Question 4 - Answer

C. Family incentive trustA Family Incentive Trust provides

incentives for the beneficiaries to work harder and achieve goals.

Question 5

You earn $6,000 during your summer 2007 internship (May through August). How many quarters of coverage under Social Security would you have earned in 2007?

A. 0 B. 1 C. 4 D. 6 E. None of the above

Question 5 - Answer

C. 4

For 2007, you earn one “Quarter” of coverage for each $1000 of annual earnings, subject to a maximum of 4 quarters per year.

$6000/ $1000 = 66 >= 4, so 4 quarters

Homework #12 Review

Combining Policies Together

Brian’s Secrets to Using All Policies

Decide which of the 3 policies apply for the question Are any excluded for the entire question or do not apply?

Narrow it down. Look at each number and decide which policy

applies Anything relating to your car is just the auto policy

(Homeowner’s excludes auto) Anything relating to your home is just the homeowner’s

policy (Auto excludes personal property) Anything relating to your health is auto and health policy

(Homeowner’s excludes personal medical payments) Auto policy pays first $25,000 in medical bills, health pays

additional amount which is calculated by the reduction of benefits calculations

With it now broken up, it is simply a combination of questions from previous homework. Write everything out clearly, and cross off each number once it is accounted for

Question 1

While you are sitting in your house an earthquake hits your town. It destroys your house, which had a replacement cost of $110,000, your personal property, which had a replacement cost of $80,000 and an ACV of $60,000, and your car, which had an ACV of $10,000. You are also injured and go to the emergency room for treatment. You are billed $575 for the visit.A) $10,000 B) $10,300 C) $10,575D) $160,575 E) None of the above

Question 1 - Answer

Homeowner’s doesn’t cover earthquakes. Auto policy covers car, health covers emergency room treatment.$10,000 ACV of Car (Comprehensive)$575 - $200 (deductible) = $375$375 x .8 (coinsurance) = $300$10,300 Total

Question 2

Your aunt, who is visiting you from Phoenix, drives your car on an errand. On her return, she steps on the gas, rather than the brake, and runs the car through the back wall of the garage, which is connected to your house, and into your living room, hitting your TV. It costs $15,000 to repair the damage to the garage/living room wall, $550 to replace the TV that was destroyed (ACV of $300) and $2,500 to repair your car. Your aunt incurs $10,000 in medical bills for the injuries she sustained in this accident.A) $15,050 B) $17,450 C) $27,450D) $27,700 E) None of the above

Question 2 - Answer

Auto and Homeowner’s policies$15,000 Wall (dwelling)$300 ACV TV (personal property)-$250 Homeowner’s deductible$2,500 Repair car (collision)-$100 Collision deductible$10,000 Medical bills

$27,450 Total

Question 3

An alien space ship visiting earth accidently wrecks your car and attached garage when their tractor beam malfunctions. It costs $40,000 to rebuild your garage. The replacement cost of your personal property is $25,000; the ACV was $20,000. The replacement cost of your car is $20,000, the ACV was $10,000.A)0 B) $10,000 C) $49,750D) $69,750 E) None of the above

Question 3 - Answer

Dwelling – Open Peril (alien space ship’s tractor beam not excluded)

Personal Property – Named Peril (alien space ship’s tractor beam not named)

Auto – Open Peril (alien space ship’s tractor beam not excluded)

$40,000 Garage (dwelling)-$250 Homeowner’s deductible$10,000 ACV Car

$49,750 Total

Additional Office Hours Week of 12/9

Sunday, December 9th

12-2pm Eric Lam2-4pm Pan Wong4-6pm Neal Simons6-8pm Brian Alvin

Monday, December 10th1-3 pm Bill Schneider6-8pm Kathy Gu