1. If a shed valued at $13,000 in the backyard is also destroyed in the fire, what is the maximum amount that the insurance company will pay prior to the deductible to replace the shed and any other detached dwellings? Justify your answer. Show all calculations.
A. $225,000
B. $25,000
C. $21,070
D. $13,000
E. $1300
2. Sandra believes that her husband is a reckless driver. She worries about what would happen if he were ever in a serious car accident. If Ken is involved in a car accident and causes physical harm to another motorist in the amount of $300,000, how much will be paid from the personal automobile policy (PAP) and how much from the excess liability policy? Show your computations.
A. $300,000 PAP and $0 excess liability
B. $0 PAP and $300,000 excess liability
C. $150,000 PAP and $150,000 excess liability
D. $50,000 PAP and $250,000 excess liability
E. $250,000 PAP and $50,000 excess liability
3. How much will the Sheehans' health insurance company pay if Sandra files a claim for a broken foot that cost $2,000 for emergency room treatment, $700 for bone setting, and $300 in rehabilitation services? Show your computations.
A. $0
B. $500
C. $2000
D. $2500
E. $3000
4. The Sheehans are curious about the alternatives available when planning for possible nursing home care costs in the future. Which of the following long-term care insurance strategies is/are appropriate financial planning alternatives for the Sheehans? Justify your response(s).
A. Use the living benefits provision within an accelerated death benefit rider available in the universal life insurance policy.
B. Purchase a life insurance policy that has a long-term care insurance endorsement.
C. Systematically save for future health care costs and use Medicare as the primary insurance coverage for long-term care expenses.
D. Use Medicaid coverage for long-term care expenses after age 65.
5. Currently neither Ken nor Sandra has disability insurance coverage. Ken and Sandra would like more information from you about disability insurance. Which of the following statements is true in relation to disability insurance? Justify your answer.
A. Shorter elimination periods result in lower premium costs.
B. Benefits paid from employer-provided group disability plans are received income tax-free.
C. If a guaranteed renewable contract is used, the insurance company cannot increase premiums on individual policies but can raise premiums for all individuals covered by that policy.
D. Disability policies are nearly always designed to provide lifetime benefits.