Case Facts
Amy and John Schultz, introduced in chapter 1, form the basis for a series of mini-cases throughout this text. Basic information regarding Amy and John is introduced in chapter 1. More information is provided in later chapters, as additional topics are discussed.
Recall that Amy Schutz, aged 28, and her husband John, aged 33, are engineers at SKH, Inc., which provides group benefits that include life insurance of two times their salary, medical expense insurance, short-term disability insurance, and long-term disability insurance. They just purchased their first house, which is across the street from an elementary school, and they are planning to have children soon.
Amy and John both own and drive late-model compact cars, for which they carry separate auto insurance policies, partly because of John's bad driving record, with the minimum coverages required by law.
As explained in chapter 1, Amy SchuEtz, aged 28, and her husband, John, aged 33, are both engineers employed by SKH, Enc. John earns an annual salary of $95,000; Amy's annual salary is $55,000. SKH provides group benefits that include life insurance of two times their salary.
Amy's and John's late-mode compact cars, which they purchased before they were married, are completely paid for. They carry separate auto insurance policies, partly because of John's bad driving record, with the minimum coverages required by law. They also purchased a homeowners insurance policy to satisfy one of the conditions of their mortgage
Case Analysis
1. Describe three systems Amy and John can use to identify the risks they face.
2. Explain one specific way in which Amy and John can use each of the following risk management techniques to address the risks they face:
Risk avoidance
Loss prevention
Loss reduction
Noninsurance transfer
Risk retention
3. Categorize each of the following risks Amy and John face in terms of its expected loss frequency and expected loss severity, and suggest an appropriate way of addressing the risk:
Damage to John's car, which has a current market value of $12,000
Liability claim against Amy and John because a guest is injured on their property
The necessity of surgery for Amy
A cavity in one of John's teeth that needs to be filled
4. After reading a magazine article, Amy and John decided to upgrade their insurance by buying a $100,000 whole life insurance policy on John and to increase the $50,000 limits of liability coverage on their auto insurance policies to $300,000. Explain why they were able to buy more than $100,000 in auto insurance coverage by telephone, but they could not purchase $100,000 in life insurance without answering a number of questions and undergoing physical exams.
5. Two months after they moved into their house, the fuel oil tank for their furnace ran dry while they were at work, and cold temperatures in the house caused a pipe to freeze and burst with resulting water damage. Describe in general terms the process Amy and John and their insurance company will follow in pursuing a homeowners insurance claim.