Jack and Jane are married and own a home insured for $150 000 under an unendorsed HO-3 policy. The..

QUESTION

Jack and Jane are married and own a home insured for $150,000 under an unendorsed HO-3 policy. The replacement cost of the home is $250,000. Personal property is insured for $75,000. Jane has jewelry valued at $10,000 and Jack has a coin collection valued at $15,000 and a motorboat valued at $20,000. a. Assume you are a financial planner who is asked to evaluate the couples HO-3 policy. Based on the above facts, do you believe that their present coverages are adequate? If not, make several recommendations for improving the coverage. b. A fire damaged one bedroom. The actual cash value of the loss is $10,000. The cost of repairs is $16,000. How much will the insurer pay for the loss? c. A burglar broke into the home and stole a new television, jewelry, and several paintings. The actual cash value of the stolen property is $4000. The cost of replacing the property is $9000. In addition the coin collection was taken. Indicate the extent, if any, to which an unendorsed HO-3 policy will cover the preceding losses. d. Assume that Jack and Jane have a disagreement with their annual insurer concerning the value of the above losses. How would the dispute be resolved under their HO-3 policy? e. Assume that Jane operates an accounting business from her home. Her home business office contains a computer used solely for business, office furniture, file cabinets, and other businesspersonal property. Explain whether her HO-3 policy would cover business personal propert used in a home business.
a. I believe that Jack and Janes present coverages are not adequate. Based on the given information they are insured for $75,000 for personal property but there are special limits of liability within the HO-3 policy. The special limits of coverage of jewelry in the HO-3 policy is only up to $1500, for coin collections it would be $200, and for the motorboat $1500. This is far less coverage than the current worth of these items. A recommendation for Jack and Jane to receive adequate coverage for these items would be to schedule and insure these items for a specific amount of insurance. By creating scheduled amounts of coverage, Jack and Jane will be covered for the full amount of these items, bypassing the HO-3s policy coverage limitations. Jack and Janes home insurance level of $150,000 is also not adequate for the replacement cost of $250,000 for their home. They need to raise the amount of coverage from the current $150,000 to $250,000. If there was a total loss on their home, from say a fire, they would not receive enough coverage from their policy to replace their home. b. The amount needed to repair the damage from the fire in the bedroom is $16,000. This is less than the $150,000 of insurance on Jack and Janes home insurance policy. Since it is less than there policy limit, the entire loss of $16,000 will be covered on their policy. If the amount of insurance carried is equal to at least 80 percent of the replacement cost of the damaged building

at the time of loss, full replacement cost is paid up to the limits of the policy with no deduction for depreciation. c. The amount of insurance on personal property is equal to 50 percent of the amount of insurance on the dwelling. In Jack and Janes case this is up to $75,000. However, there is property not covered on coverage C that was stolen and they have limits on how much you can recover. This would include the stolen coin collection and jewelry. I believe the insurance would cover up to the $9,000 for the items that are not jewelry or coins. In the case of the jewelry and coins the insurance would only cover up to $1500 for the jewelry and $200 for the coins without these items being specifically insured higher. Depending on the cost of the television and paintings, Jack and Jane would only be able to recover a portion of the $9,000 it would cost to replace all the items and only $200 for the stolen coin collection. d. The dispute of the value of the items for the above losses would be resolved by Jack and Jane providing pictures and receipts of the values of the stolen items. They would need some proof in this regard to justify the amounts they said the items were worth to the insurer. e. Property used primarily for business purposes is limited to $2,500 on the premises. Janes HO-3 policy would cover her business personal property up to this amount.

ANSWER:

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