Overwhelming

35. 
    (p. 272) FALSE 38. (p. 251) B
    

75. (p. 264) C

99. 
    (p. 253) A pure risk is insurable risk as well as accidental and unintentional. Although no one can predict whether a pure risk will occur, it is possible to predict the costs that will accrue if one does. This type of risk is insurable.
    

99. 
    (p. 253) The following are acceptable answers:
    

99. 
    (p. 253) The main goal should be to minimize personal, property, and liability risks.
    

• 
  Whom should I buy insurance from?
  
• 
  What kind of insurance should I buy?
  
• 
  How much should I insure it for?
  
• 
  What do I need to insure?
  

99. 
    (p. 254) Questions include these:
    

99. 
    (p. 256) The main risks are risk of damage to or loss of your property and your responsibility for injuries to other people or damage to their property.
    

99. 
    (p. 256) Examples include physical damage caused by perils such as fire, wind, water, and smoke (e.g., a windstorm causing a large tree branch to smash the car windshield) and loss or damage caused by criminal behavior such as robbery, burglary, vandalism, and arson.
    

• 
  Specialized coverage (flood or earthquake).
  
• 
  Personal liability and related coverage.
  
• 
  Personal property up to a limit.
  
• 
  Additional living expenses.
  
• 
  Building in which you live and other structures on the property.
  

99. 
    (p. 258) Homeowner's insurance coverage includes
    

99. 
    (p. 259) A household inventory would provide documentation of his personal belongings. He can use photographs of his home and contents (with the dates and values of objects listed on the backs), a video recording, or a listing with purchase dates and cost information. The inventory should be kept in a secure location, such as a safe deposit box.
    

99. 
    (p. 259) A personal property floater is additional property insurance that covers the damage or loss of a specific item of high value. These floaters can be used for items such as musical instruments, jewelry, computers, or other electronic equipment.
    

99. 
    (p. 260) An umbrella policy, also called a personal catastrophe policy, supplements basic personal liability coverage. This covers the policyholder for personal injury claims, lawsuits, and other liability claims that exceed the homeowner's policy limits for basic personal liability coverage.
    

• 
  HO-6: condominium owner's insurance. Protects personal property and any additions or improvements made to the living unit.
  
• 
  HO-5: comprehensive form. This expands the coverage of HO-3 by including endorsements for items such as replacement cost coverage on contents and guaranteed replacement cost coverage on buildings.
  
• 
  HO-4: tenant's form. Protects the personal property of renters against the risks listed in the policy. It does not include coverage on the building or other structures.
  
• 
  HO-3: special form. Includes all broad-form risks plus other risks except those specifically excluded from the policy.
  
• 
  HO-2: broad form. Includes HO-1 plus falling objects and damage from ice, snow, or sleet.
  
• 
  HO-1: basic form. Protects against perils such as fire, lightning, windstorms, hail, volcanic eruptions, explosions, smoke, theft, vandalism, glass breakage, and riots.
  

99. 
    (p. 262) The forms are listed here:
    

• 
  Claim settlement method—replacement cost will be more expensive than actual cash value.
  
• 
  Coverage for personal belongings.
  
• 
  Full coverage replacement value.
  
• 
  The automatic increase in coverage as construction costs rise.
  
• 
  The costs to rebuild or repair your house.
  

99. 
    (p. 264) The amount of home insurance should be based on
    

• 
  Discounts—smoke detector, fire extinguisher, deadbolt locks, and alarm systems can decrease rates.
  
• 
  Deductible—a higher deductible should reduce the premium.
  
• 
  Amount of coverage for your home.
  
• 
  Type of structure—brick homes usually cost less to insure than wood.
  
• 
  Location of home—severe weather such as tornadoes and hurricanes can increase rates.
  
• 
  Location of home—high-crime areas will have higher rates.
  
• 
  Location of home—close to a water supply or fire hydrant will have lower rates.
  

99. 
    (p. 264) Factors include
    

99. 
    (p. 265) Rates can vary by more than 30% among insurance companies. In addition, service and coverage can vary. Not all companies settle claims in the same way.
    

99. 
    (p. 268) These amounts represent thousands of dollars of coverage. The first two numbers refer to bodily injury coverage. The 100 means
    

b. Collision—insurance that covers damage to your vehicle when it is involved in an accident regardless of who was at fault. Example: damage to your car when you hit a deer while driving as dusk (student answers will vary).

99. 
    (p. 269) Examples include these:
    

• 
  Cover only liability for an old car.
  
• 
  Insure two or more vehicles with the same company.
  
• 
  Be a nonsmoker.
  
• 
  Install security devices.
  
• 
  Maintain good grades in college.
  
• 
  Take a driver training program.
  
• 
  Compare coverage at other companies.
  
• 
  Keep a clean driving record by avoiding accidents and traffic tickets.
  
• 
  Increase your deductible.
  
• 
  Don't file small claims.
  
• 
  Improve your credit score.
  

99. 
    (p. 273) Many answers are appropriate:
    

8 Summary

Category # of Questions

Blooms: Analyze 7

Blooms: Apply 3

Blooms: Remember 47

Blooms: Understand 58

Difficulty: 1 Easy 30

Difficulty: 2 Medium 65

Difficulty: 3 Hard 20

Kapoor - Chapter 08 115

Learning Objective: 08-01 Identify types of risks and risk management methods and develop a risk management plan. 39

Learning Objective: 08-02 Assess the insurance coverage and policy types available to homeowners and renters. 28

Learning Objective: 08-03 Analyze the factors that influence the amount of coverage and cost of home insurance. 17

Learning Objective: 08-04 Identify the important types of automobile insurance coverage. 23

Learning Objective: 08-05 Evaluate factors that affect the cost of automobile insurance. 8

Topic: Automobile Insurance Costs 8

Topic: Automobile Insurance Coverages 23

Topic: Home and Property Insurance 28

Topic: Home Insurance Cost Factors 17

Topic: Insurance and Risk Management 39

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