Question 2 (15 marks)

Fred Chan owns a house in country X, living with his wife and two children. He insured it for 80 percent of the replacement cost as required by the requirement of co-insurance under a Boom homeowner insurance in which he is the sole insured.

Boom homeowner insurance coverages are listed as follows:

Dwelling and any other structure attached to the dwelling All Risks cover1: Sum

Insured: $2,000,000 per policy year

Household Contents2 All Risks cover: Maximum limit: $500,000 per policy year

Legal Liability: Maximum limit: $5,000,000 per policy year

Remarks:

1Losses to the dwelling and any other structures attached to the dwelling are paid based on replacement cost with no deduction for depreciation

2Losses to household contents are paid based on actual cash value, subject to a policy excess of $1,000 per claim.

Last week, lightning hit on the roof of the house. The actual cash value of the damaged roof is $18,000, and it will cost $23,000 to replace the damaged portion. Also, a living room window is broken. The actual cash value of the damaged window is $500, and it will cost $600 to replace the damaged window. The curtains are water stained and must be replaced. The actual cash value of the damaged curtains is $4,000. Replacement cost is $6,000.

(a) Based on the provided information, indicate which coverage(s) and amount(s) that the damaged roof and curtains would be covered under homeowner insurance separately.6 marks)

(b) List any THREE other exclusions in homeowner insurance. (3 marks)

(c) Which ONE of the characteristics of insurance best describes that Boom insurance insured large numbers of the houses in country X subject to the same perils? Explain its meaning and purpose. (6 marks)

Question 2 (15 marks) Fred Chan owns a house in country X, living with his wife and two children. He insured it for 80 percent of the replacement cost as required by the requirement of co-insurance under a Boom homeowner insurance in which he is the sole insured. Boom homeowner insurance coverages are listed as follows: Dwelling and any other structure attached to the dwelling "All Risks cover': Sum Insured: $2,000,000 per policy year Household Contents? All Risks cover: Maximum limit: $500,000 per policy year Legal Liability: Maximum limit: $5,000,000 per policy year Remarks: 'Losses to the dwelling and any other structures attached to the dwelling are paid based on replacement cost with no deduction for depreciation -Losses to household contents are paid based on actual cash value, subject to a policy excess of $1,000 per claim. Last week, lightning hit on the roof of the house. The actual cash value of the damaged roof is $18,000, and it will cost $23,000 to replace the damaged portion. Also, a living room window is broken. The actual cash value of the damaged window is $500, and it will cost $600 to replace the damaged window. The curtains are water stained and must be replaced. The actual cash value of the damaged curtains is $4,000. Replacement cost is $6,000. (a) Based on the provided information, indicate which coverage(s) and amount(s) that the damaged roof and curtains would be covered under homeowner insurance separately. (6 marks) (b) List any THREE other exclusions in homeowner insurance. (3 marks) (c) Which ONE of the characteristics of insurance best describes that Boom insurance insured large numbers of the houses in country X subject to the same perils? Explain its meaning and purpose. (6 marks)