Chapter 8 Case Study

1. Why is it important for people who rent to have insurance?

It is important for renters to have insurance so that their personal property is protected,. It also provides
liability coverage in case that someone is hurt on the renter’s premises.

2. Does building owners property insurance ever cover the tenants personal property?
The landlord is most often only liable for renter property if it can be proved that something they did
caused damage to a renters personal property.

3. What is the difference between cash value and replacement value?

Cash value is the amount that an object is currently worth. Replacement value is the cost to replace that
object.

4. When shopping for renters insurance, what coverage features should you look for?
The renter should know if they are entering a broad form policy which covers the renters possessions in
the items specifically stated in the policy. The other form that a renter can enter into is the
comprehensive form, which protects the renter against all things not specifically excluded within the
policy.
The renter should also know whether or not they are going to get replacement value or cash value from
their insurer. Also if they are covered in case someone is injured on their property.

Continuing Case
1. What insurance goals and risk management plan should Vikki and Tom have?
They must determine what risks that they face, if one of them was to no longer provide income they
would have to know that they would be able to continue with their lives. They have property insurance
but they should probably consider life and disability insurance in case one of them becomes injured or
killed. To help manage their risk they might want to get liability insurance in case something happens on
their property.

2. Discuss the home insurance policy coverage they should consider? What can affect their premium?
They must decide by what portion of their personal belongings they want coverage,55,70, or 75
percent. Because they are doing renovations on their house and purchasing many items for their new
child they will probably want at least 70 percent . They should also consider having a household
inventory in case their possessions are destroyed. Nothing indicated in their information that anything
abnormal is going to happen to them so they would probably be fine getting basic homeowners
insurance HO-1.
Another consideration that they should look at is getting an umbrella policy. This way they will be
protected could be extremely beneficial to them in case something unforeseen happens to them.
Some of the factors that might affect their premium are: The location of their home, if they live in a
dangerous place their premium will be higher. They would have to also make a choice between having a
higher deductable or a lower premium.
One of the best things that they should do is shop around for insurance. Looking at multiple companies
to see who will give them the best rate.

3. What types of auto insurance should they consider? What will affect their premium?
Both cars that they own have a significant replacement value. To ensure that they are protected they
should consider all of the types of auto insurance. If they were to cause an accident they may be liable
for the medical costs of others and have hefty bills themselves. They should purchase bodily injury
liability, and medical payments coverage. They also should get covered with uninsured motorists
protection in case they are in an accident with a motorist who does not have insurance.
They will also need to be covered to protect the value of their vehicles and any damage they cause any
one else. They need property damage liability and Collision insurance in case they damage someone else
property or vehicles. Since their vehicles are valuable they should get comprehensive physical damage
insurance in case something like fire or hail damages on of their vehicles.
If they want lower premiums they might consider getting less insurance. The types of cars that they own
will affect the premium. Most importantly their driver classification will greatly affect their premium,
they will pay lower premiums if they are considered lower risk, also they are both over 25 so they are
out of the most dangerous age group.

4. How can they use Your Personal Financial Plan sheets 26-30
Sheet 26 will give them a good idea of what coverage they have and what coverage they will need.
Sheet 27 is the home inventory sheet and it will allow them to know exactly what they own and how
much it is worth.
Sheet 28 will determine how much their property is worth and how much coverage they need.
Sheet 29 Compares how much coverage they will need for their home based off of their living expenses
and their total coverage to determine what their premium is
Sheet 30 will help them compare auto insurance policies and determine which one is the correct choice
for them.