Joe and Lisa White are a married couple. Joe is 63 and Lisa is 61. Joe is thinking about retiring in a few years, and the Whites have come to you for an insurance evaluation. Lisa plans to continue working even after Joe retires. The following provides a summary of the Whites’ insurance planning situation.
Life Insurance
Joe owns a $500,000 universal life insurance policy. Joe is the insured and their son David, age 37, is the beneficiary. The policy has a cash value of $50,000 and a living benefits provision; all account earnings are used to offset premium expenses. Lisa owns a 20 year $350,000 level term life policy that she purchased five years ago. She pays approximately $1,000 per year in premium costs. Lisa is the insured and Joe is the beneficiary.
Property and casualty insurance
Joe and Lisa own a home as JTWROS. The home has a market and replacement value of $675,000. The house is insured with the standard HO-3 policy for $550,000. The policy requires that the Whites pay a $500 deductible per claim occurrence. Other provisions include the following:
10% coverage on detached structures
Coverage up to $250 for cash
Coverage up to $1,500 for collectibles, artwork, and similar assets
Personal property contents coverage equal to 20% of the insured dwelling
Living expenses coverage for six months
Coverage up to $100,000 for personal liability
A replacement cost coverage endorsement is in place
The Whites’ two cars are insured under a personal automobile policy with split limit coverage of 250,000/500,000/50,000. They also have a $1 million excess liability policy.
Health insurance
The Whites are covered under Lisa’s group health insurance plan. The traditional plan has a lifetime maximum benefit equal to $5 million for the family, a $500 per person deductible, and an 80% coinsurance clause, with the family stop-loss limit of $2,500.
Using this information, please answer the following questions.
5. If the Whites sustain an $90,000 loss to their dwelling from a fire, how much will the insurance company pay (after the deductible) toward the dwelling loss claim? Justify your answer. Show all computations.
5A. $550,000
5B. $55,000
5C. $89,500
5D. $90,000
6. Lisa believes that her husband is a reckless driver. She worries about what would happen if he were ever in a serious car accident. If Joe 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.
6A. $300,000 PAP and $0 excess liability
6B. $0 PAP and $300,000 excess liability
6C. $150,000 PAP and $150,000 excess liability
6D. $50,000 PAP and $250,000 excess liability
6E. $250,000 PAP and $50,000 excess liability
