Kevin and Sonya Shim are conducting an insurance review with their financial planner. Kevin and Sonya consider themselves middle-class Americans-with small but positive cash flow and a modest net worth. Kevin (age 63) is just a few years away from retirement, whereas (age 61) 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 37) is the beneficiary. The policy has a cash value of $23,450 and living benefits provision; all account earnings are used to offset premium expenses. Sonya owns a 25-year $100,000 level term life policy that she purchased five years ago. She pays approximately $450 per year in premium costs.

Property and Liability 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. Their provisions include the following:

10% 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% of the insured dwelling,

Living expense coverage for 6 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 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 a 20% coinsurance, with a family stop-loss of $2,500.

Please use the preceding case information to answer the questions below:

1. Kevin is considering purchasing a 12-year-old pick-up 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 goal is to decrease the annual premium while retaining appropriate coverage, which or the following insurance coverage should Kevin exclude when purchasing an insurance policy for this truck? I. Part ALiability coverage. II. Part Bmedical payments coverage. III. Part Cuninsured IV. Part Ddamage to insureds auto coverage

2. If Sonya were to die today, which of the following is true in relation to the $250,000 universal life insurance policy owned by Kevin?

a. Kevin will continue to own the policy for the benefit of Wilbur. b. Kevin will be deemed to have made a taxable gift of the life insurance proceeds to Wilbur. c. Kevin will receive an amount equal to the cash value, while Wilbur will receive the remainder of the life insurance value as a tax-free gift. d. Kevin will receive the proceeds of the policy. e. Kevin must include the $250,000 face value of the policy as an asset when he calculates Sonyas gross estate.

3. If the Shims sustain an $80,000 loss to their dwelling from a fire, how much will the insurance company pay (after the deductible) toward the dwelling loss claim?

4. If a shed valued at $13,000 in the backyard is also destroyed in the fire, what is the maximum amount that the insurance company will pay, prior to the deductible, to replace the shed and any other detached dwelling?

5. Sonya believes that her husband is a reckless driver, and she worries about what will happen if he is ever in a serious car accident. If Kevin is involved in a car accident that caused physical harm to another motorist in the amount of $300,000, how much will be paid from the personal automobile policy (PAP) and how much will be paid from the excess liability policy?

6. How much will Shims health insurance company pay if Sonya files a claim for a broken foot that cost $2,000 for emergency room treatment, $700 for bone setting, and $300 in rehabilitation services?