Mike and Molly consider themselves middle Americans – with a small but positive cash flow and a modest net worth. Mike, age 63, is just a few years away from retirement whereas Molly, age 61, plans to work a few more years once Mike officially retires. The following discussion provides a summary of the Hammonds’ insurance planning situation.

Life Insurance

Mike owns a $350,000 universal life insurance policy. Molly is the insured and their son Robert, age 37, is the beneficiary. The policy has a cash value of $33,450 and of living benefits provision; all account earnings are used to offset premium expenses. Molly owns a 20 year $200,000 level term life policy that she purchased five years ago. She pays approximately $650 per year in premium costs.

Property and casualty insurance

Mike and Molly own a home as JTWROS that has a market and replacement value of $275,000. The house is insured with the standard HO-3 policy for $225,700. The policy requires that the Hammonds 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 Hammonds’ 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 Hammonds are covered under Molly’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.

Use the preceding case information to answer the questions that follow.

1. In preparation for retirement, Mike is exploring his Social Security and Medicare insurance coverage. Which of the following is (are)a benefit provided by Medicare?

1A. Hospice benefits for terminally ill persons.

1B. A stop-loss limit for annual medical expenses in excess of $2500.

1C. Coverage for custodial care.

1D. Coverage for nonprescription drugs.

2. Mike is considering purchasing a 12-year-old pickup truck for use when he goes hunting. The truck that he has his eye on has 90,000 miles but is in generally good condition. Which of the following insurance coverages should Mike probably exclude when purchasing an insurance policy for this truck?


 

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