Chapter 10 Financial Planning Problems

CHAPTER 10 FINANCIAL PLANNING PROBLEMS

1. Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If $3,800 of jewelry and $2,800 of silverware were stolen from a family, what amount of the claim would not be covered by insurance? 2. What amount would a person with actual cash value (ACV) coverage receive for two-year- old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of five years. 3. What amount would it cost an insurance company to replace a family’s personal property that originally cost $28,000? The replacement costs for the items have increased 15 percent. 4. If Carissa Dalton has a $130,000 home insured for $100,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a $5,000 claim? 5. For each of the following situations, what amount would the insurance company pay? a. Wind damage of $835; the insured has $500 deductible.

b. Theft of a stereo system worth $1,300; the insured has a $250 deductible.

c. Vandalism that does $425 of damage to a home; the insured has a $500 deductible.

6. Becky Fenton has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which the insured was judged at fault, how much of this judgment would insurance cover? 7. Kurt Simmons has 50/100/15 auto insurance coverage. One evening he lost control of his vehicle hitting a parked car and damaging a store front along the street. Damage to the parked car was $5,400 and damage to the store was $12,650. What amount will the insurance company pay for the damages? What amount will Kurt have to pay? 8. Beverly and Kyle Nelson currently insure their cars with separate companies paying $650 and $575 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings over ten years based on an annual interest rate of 6 percent?