AN INSURANCE PLANNING MINI-CASE

Kevin and Sonya Shim are conducting an insurance review with their financial planner. Kevin and Sonya consider themselves middle-class Americanswith a small but positive cash flow and a modest net worth. Kevin (age sixty-three) is just a few years away from retirement, whereas Sonya (age sixty-one) plans to work a few more years once Kevin officially retires. The following discussion provides a summary of the Shims insurance planning situation.

Life Insurance

Kevin owns a $250,000 universal life insurance policy. Sonya is the insured and their son Wilbur (age thirty-seven) is the beneficiary. The policy has a cash value of $23,450 and a living benefits provision; all account earnings are used to offset premium expenses. Sonya owns a twenty-year $100,000 level-term life policy that she purchased five years ago. She pays approximately $450 per year in premium costs.

Property and Casualty Insurance

Kevin and Sonya own a home as JTWROS that has a market and replacement value of $245,000. The house is insured with a Standard HO-3 policy for $210,700. The policy requires that the Shims pay a $500 deductible per claim occurrence. Other provisions include the following:

10 percent coverage on detached structures,

coverage up to $250 for cash,

coverage up to $1,500 for collectibles, artwork, and similar assets,

personal property contents coverage equal to 20 percent of the insured dwelling,

living expense coverage for six months,

coverage up to $100,000 for personal liability, and

a replacement cost coverage endorsement is in place.

The Shims two cars are insured under a personal automobile policy with split-limit coverage of $250,000/$500,000/$50,000. Kevin and Sonya also have a $1 million dollar excess liability policy.

Health Insurance

The Shims are covered under Sonyas group health insurance plan. The traditional plan has a no lifetime maximum benefit, a $500-per-person deductible, and an 80 percent coinsurance clause, with a family stop-loss limit of $2,500.

Use the preceding case information to answer the questions that follow.

A. In preparation for retirement, Kevin is exploring his Social Security and Medicare insurance coverage options. Which of the following is a benefit provided by Medicare?

a.Hospice benefits for terminally ill persons.

b.A stop-loss limit for annual medical expenses in excess of $2,500.

c.Coverage for custodial care.

d.Coverage for non-prescription drugs.

B. Kevin is considering purchasing a twelve-year-old pickup truck for use when he goes hunting. The truck that he has his eye on has 90,000 miles but is in generally good condition. If Kevins insurance goal is to decrease the annual premium while retaining appropriate coverage, which of the following insurance coverage(s) should Kevin exclude when purchasing an insurance policy for this truck?

I.Part Aliability coverage.

II.Part Bmedical payments coverage.

III.Part Cuninsured motorist coverage.

IV.Part Ddamage to insureds auto coverage.

a.IV only

b.II and IV only

c.I, II, and III

d.I, III, and IV

e.II, III, and IV