The decision to buy a home is one of the largest personal investments made by most individuals, and protecting that investment is an important task in personal risk management. We purchase homeowner's insurance to protect our most important assets: our home and its contents. Homeowner's insurance, focusing on the HO-3 homeowner's policy, also known as the special policy, combines property insurance, comprehensive personal liability insurance, additional living expense coverage, replacement-cost coverage, and medical-expense coverage-for-others all in one package.

This assignment illustrates a detailed example of how a homeowner's policy is applied to various situations. Bob and Gina Williams have had a string of bad luck, encountering situations in their lives that call for claims on their homeowners' policy. They must figure out what will be paid for each situation. Use the standard HO-3 policy, as described in Appendix A of your textbook, for reference.

The policy limits are as follows:

Type of Coverage Limit

Coverage A

$100,000

Coverage B

$6,000

Coverage C

$50,000

Coverage D

$32,000

Coverage E

$6,000

Coverage F

$3,000

NOTES: A $500 deductible applies to Section 1, Coverages A-D. The replacement cost of their home is $180,000, the contents are valued at $45,000, and the home is 25 percent depreciated.

Compute the amount that Gina and Bob will collect in each of the following circumstances. Each event below occurred separately from the others; therefore, calculate each event independently.

1. While burning leaves, Bob causes his neighbor's house to burn (damage = $35,000).
2. Gina negligently starts a fire while cooking. Their home and all its contents are a total loss. It costs Gina and Bob an additional $12,000 to live in a rental home while their house is being rebuilt.
3. Gina and Bob's house and all its contents are destroyed by a hurricane. It takes six months to rebuild their home. Their additional living expenses amount to $32,000.
4. Gina is a Certified Public Accountant (CPA) working from her office at home. She is sued for negligence in preparing Darlene Adam's income tax. The suit is successful, and Darlene wins a $40,000 judgment.
5. Gina and Bob's unattached shed is destroyed in a fire (damage = $8,500); also destroyed in the shed was their lawn-care equipment (damage = $5,000).
6. While playing golf, Bob's ball hits another golfer in the head. Bob yelled a warning before the victim, Eddie, was hit. Eddie claims not to have heard the warning and sues Bob for $60,000 in medical expenses, $6,000 in lost wages (because he couldn't perform his work for three months), and $100,000 for pain and suffering. Assume that Eddie wins the case, and it costs an additional $20,000 to provide Bob with a legal defense.
7. While Gina and Bob's daughter is away at college, her computer is stolen from her dorm room (damage = $1,000).
8. While moving their new widescreen television to the basement, Bob drops it. It is a total loss (damage = $1,600).

Illustrate your calculations for determining your final answers and briefly explain how you arrived at the answers, as partial credit will be awarded for your understanding of the course materials.