1. Toula and Ian Miller of Lincoln, Nebraska, recently suffered a fire in their home. The fire, which began in a crawl space at the back of the house, caused $24,000 of damage to the dwelling. The garage, valued at $18,400, was totally destroyed but did not contain a car at the time of the fire. Replacement of the Millers’ personal property damaged in the home and garage amounted to $18,500. In addition, $350 in cash and a stamp collection valued at $3215 were destroyed. While the damage was being repaired, the Millers stayed in a motel for one week and spent $1350 on food and lodging. The house had a value of $195,000 and was insured for $150,000 under an HO-3 policy with a $250 deductible. Use Table 10-1 on page 298 to answer the following questions. (You must first determine whether the Millers have adequate dwelling replacement coverage and, if not, what percentage of the necessary 80 percent coverage they do have. The resulting answer will determine the percentage of the loss to the dwelling covered, and consequently the amount to be reimbursed by the insurance company.)

(a) Assuming that the deductible was applied to the damage to the dwelling, calculate the amount covered by insurance and the amount that the Millers must pay for each loss listed: the dwelling, the garage, the cash and stamp collection, and the extra living expenses.

(b) How much of the amount of the personal property loss would be covered by the insurance policy? Paid for by the Millers?

(c) Assuming that they have contents replacement-cost protection on the personal property, what amount and percentage of the total loss must be paid by the Millers?

2. Colton Gentry of Atlanta, Georgia, has owned his home for ten years. When he purchased it for $178,000, Colton bought a $160,000 homeowner’s insurance policy. He still owns that policy, even though the replacement cost of the home is now $300,000.

(a) If Colton suffered a $20,000 fire loss to the home, what percentage and dollar amount of the loss would be covered by his policy?

(b) How much insurance on the home should Colton carry now to be fully reimbursed for a fire loss?

3. Bill Converse of Birmingham, Alabama, recently had his truck slide off a gravel road and strike a tree. Bill’s vehicle suffered $17,500 in damage. The truck has a book value of $40,000. Bill carried collision insurance with a $500 deductible. How much will Bill be reimbursed by his policy?

4. Ashley Diamond of Griffin, Georgia, drives an eight-year-old Toyota valued at $5600. She has a $75,000 personal automobile policy with $10,000 per-person medical payments coverage and both collision ($200 deductible) and comprehensive coverage. David Smith of Bristol Virginia drives a four-year-old Chevrolet Malibu valued at $9500. He has a 25/50/15 family automobile policy with $20,000 in medical payments coverage and both collision ($100 deductible) and comprehensive insurance. Late one evening, while he was driving back from Rocky Mountain National Park, David’s car crossed the centerline of the road, striking Ashley’s car and forcing it into a ditch. David’s car also left the road and did extensive damage to the front of a roadside store. The following table indicates the damages and their dollar amounts.

Item Amount Bodily injuries suffered by Ashley ………………………… $ 6,800

Bodily injuries suffered by Fran, a passenger in Ashleyt car ……………..   28,634

Ashley's car ……………………………………………………………….    9,600

Bodily injuries suffered by David ………………………………………..    2,700

Bodily injuries suffered by Cecilia, a passenger in David's car ………….     12,845

David car …………………………………………………………………    9,500

Damage to the roadside store ……………………………………………     14,123

Complete the following chart and use the information to answer these questions:

(a) How much will Ashley’s policy pay Ashley and Fran?

(b) Will subrogation rights come into play? In what way?

(c) How much will David’s bodily injury liability protection pay?

(d) To whom and how much will David’s property damage liability protection pay?

(e) To whom and how much will David’s medical protection pay?

(f) How much reimbursement will David receive for his car?

(g) How much will David be required to pay out of his own pocket?

Transcribed Image Text:

David Smith's Accident: Who Pays What? COVERAGE David's Ashley's Policy Policy Liability (limits) Bodily injury Ashley Fran Cecilia Medical payments (limits) David Ashley Fran Cecilia Collision coverage (limits) David's car Ashley's car David's out-of-pocket expenses Fran's bodily injury xcess property damage losses Collision insurance deductible TOTAL