Ann Chovey has a homeowner’s policy with actual cash value coverage for personal property. Her four-year- old genuine imitation leather naugahyde sofa was ruined by an infestation of mice. It would cost $5,000 to replace the sofa. The sofa had an estimated life span of ten years. Ignoring any deductible, how much would the insurance pay Ann for her sofa?

(Hints: Does actual cash value coverage pay for the replacement of an item or the current actual cash value? How much per year is $5,000 over ten years?)

There was a terrible accident in the home of Diana Thirst. The individual was awarded a judgment of $350,000. Diana’s homeowner’s policy has a maximum limit of $300,000 of personal liability. Ignoring any deductible, how much would Diana be held responsible for after the insurance company pays their portion of the award? If Diana had a personal catastrophe policy (a.k.a. an umbrella policy) with a limit of $1,000,000, how much would Diana need to pay??