Shelly and Martin O'Shea have been married twenty-five years and have three children ages 5, 7, and 11. The O'Sheas think of themselves as a middle-class to above-average-income family with typical educational aspirations for the three children. It is assumed that all three will go to the state university, where tuition and other costs will be somewhat less than for a private college or university. 

Both Shelly and Martin are employed, but by different employers. Each spouse had a gross income of approximately $40,000 last year. They are each covered by a group term life insurance policy for the amount of their annual income. Each spouse has designated the other spouse irrevocably as the primary beneficiary, and the three children are designated irrevocably as contingent beneficiaries. 

In addition to the group term life insurance coverage, Shelly has a $50,000 universal life policy on her life, and Martin has an $80,000 ordinary whole life policy on his life. The two policies have the same beneficiary designations as the group term life insurance coverages. 

Shelly's employer provides Blue Cross/Blue Shield coverage for all employees and their families under a group contract. Martin's employer provides medical expense coverage for all employees and their families under a group comprehensive major medical expense insurance policy. Martin's group comprehensive major medical expense coverage makes use of a stop-loss clause to limit Martin's out-of-pocket expenses, including the deductible, to $5,000. Both employers offer the choice of either an HMO plan or a preferred provider organization (PPO) plan to those employees and their families who prefer either of the arrangements. 

Martin has recently purchased an individual disability income policy that uses a split definition of disability. The policy has both an elimination period and a probationary period. The policy has the exclusions usually found in disability income policies, including disability arising out of the insured's occupation. The policy has: (1) a presumptive disability provision, (2) a residual disability benefit clause, and (3) a change of occupation provision. 

Although Shelly and Martin will not be eligible for Medicare benefits for another twenty years, they are already considering how Medicare benefits can be integrated and coordinated with their medical expense insurance coverages and how to deal with their long-term care expenses that are likely to pose problems for them in their retirement years. 

1.Assume that Martin's comprehensive major medical policy provides an initial deductible of $500 and an 80% coinsurance clause. How much will the insurer pay for an appendectomy involving $1,500 of hospital board-and-room charges, a $700 surgical fee, $300 for the anesthetist, and $500 for miscellaneous hospital costs?

2.In Question 1, assume that medical complications necessitated that Martin remain in the hospital for several days longer. As a result, total expenses were $30,500. Under these circumstances, how much would the insurer pay?