UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN College of Business D E PAR T M E N T O F F I NAN C E Finance 230 Fall 2007 Assignment 3 Due September 14 2007 For the following questions assume that you have the State Farm Car Policy handed out in class including the coverages and limits shown on the Declarations page Also assume that the 2001 Sebring is the only car you own unless the question indicates that you purchase another vehicle and that any situations involving borrowing cars is done with permission unless otherwise stated and that you are willing to pay any additional premiums due for vehicle changes For each situation calculate how much your insurance policy would pay in total Unless otherwise indicated assume the loss occurs during the policy period Do not assume facts not given in the question 1 You borrow your neighbor s car Your neighbor is insured with Country Insurance with the same coverages and limits you have on your policy As your neighbor is taller than you the seat is much further back and you don t take the time to adjust it When a traffic light turns red as you approach you are unable to reach the brakes in time to stop the car and you run the red light and hit a school bus in the intersection Ten children are injured in the accident Each child sues you and wins a bodily injury award of 50 000 It costs 80 000 to repair the bus and 12 000 to repair your neighbor s car A D 0 391 900 B E 200 000 None of the above C 291 200 Explanation Insurance follows the car and therefore your neighbor s policy will pay first Your policy will then pay everything in excess In total there is a 500 000 bodily injury award between the 10 children Country will pay the first 300 000 and State Farm will then pay the remaining 200 000 above that Country will pay for the 80 000 property damage liability and the 11 900 to repair your neighbor s car your neighbor will have to pay the 100 deductible 2 While on a four week vacation you rent a car You decline the insurance coverage offered by the rental agency On the last day of your vacation while you are checking out of the hotel the car with all your luggage in it is stolen and never recovered The rental agency holds you responsible for the loss The car had an Actual Cash Value of 28 000 Your luggage was worth 800 A D 0 28 800 B E 200 None of the above C 28 200 Explanation You have no coverage because you only have coverage for the first 21 days for a nonowned car 3 You borrow your spouse s car Your spouse has his her own insurance with Nationwide with the same coverages and limits you have on your own policy While driving that car you are hit from behind by an uninsured driver and seriously injured You incur 40 000 in medical bills and 20 000 in lost wages You would be entitled to a bodily injury award of 140 000 if the other driver had been insured It also costs 10 000 to repair your spouse s car A D 0 134 900 B E 15 000 None of the above C 125 000 Explanation This is not a non owned car because it is your spouse s car To avoid duplication of coverage your spouse s car is not covered by the State Farm Auto Policy and therefore you have 0 coverage Your spouse s insurance policy would pay 134 900 4 Your 22 year old son John who resides with you but is attending college away from home borrows his roommate s car for an errand His roommate has a policy with Country Companies that includes liability with 20 40 15 limits and uninsured and underinsured motor vehicle coverage both with 20 40 limits but no medical payments or physical damage coverage While driving this car John is hit from behind by an uninsured driver John incurs 27 000 in medical bills and would be entitled to a 58 000 bodily injury award if the other driver had been insured Also the roommate s car incurs damages that cost 7 400 to repair A D 0 45 300 B E 7 300 None of the above C 25 000 Explanation Country will pay for 20 000 of the 58 000 in bodily injury under uninsured motor vehicle coverage U They will not pay for the car b c he he does not have collision State Farm will pay for the rest of the 58 000 38 000 and 7 300 of the damage to the car for a total of 45 300 Your roommate will have to pay the 100 deductible 5 Your car won t start one morning so you have it towed to a service station for repairs It turns out that you need a new carburetor While your car is being repaired the service station lets you use one of their cars but warns you that there is no insurance coverage on that car While you are driving the garage s car you run into a tree damaging this car It costs 25 for towing your car to the service station 400 for a new carburetor in your car and 800 to repair the borrowed car A D 25 1225 B E 725 None of the above C 1 100 Explanation This is a temporary substitute car so you have coverage for it The 25 towing is covered and 700 of the 800 to repair the borrowed car is covered under collision The 400 for the new carburetor is not covered 6 Your 21 year old daughter Alice who lives with you has her own car and carries liability with 50 100 25 limits and uninsured motor vehicle coverage and underinsured motor vehicle coverage both with 50 100 limits with Travelers but no other coverages Alice lets your son Jake who lives with you but does not own a car borrow her car Jake runs into a house causing 3 000 in damage to her car and 30 000 in damage to the house A D 0 32 900 B E 2 900 None of the above C 7 900 Explanation Your policy will pay 2 900 to repair her car under your collision coverage Her policy will pay 25 000 of the 30 000 in damage to the house and your policy will then pay the remaining 5 000 for a total of 7 900 7 You decide that you would like a new car so on September 11 2007 you go to University Auto Park and buy a 2007 Lamborghini for 350 000 less the 9 100 you get in trade for your Sebring In all the excitement you forget to tell State Farm about this new car Four days later at 3 am when the Edens Expressway in Chicago is clear of traffic you decide to see just how fast it can …