Nick and Amber Chandler recently had a fire in their garage that destroyed two of their cars and did considerable damage to the garage and to the outside of their home. After receiving their reimbursements from their homeowners and automobile insurance policies, the Chandlers realized that they were seriously underinsured. One vehicle was not insured for fire, and the insurance on their dwelling amounted to only 60 percent of its current replacement value. What do you recommend to Nick and Amber about managing property and liability risk regarding:

1. The risk-management steps they should take to update their insurance coverages?

2. The relationship between severity and frequency of loss when deciding whether to buy insurance?

3. Adequately insuring their home?

4. The use of deductibles and policy limits to keep their automobile insurance premiums at a manageable level while still maintaining vital coverage?