Question

10.1 The Perkins’ Homeowners’ Insurance Decision Calvin and Danielle Perkins, ages 30 and 28, were recently married in Kansas City. Calvin is an electrical engineer with Analytical Solutions, a computer component design firm. Danielle has a master’s degree in education and teaches at a local middle school. After living in an apartment for six months, the Perkins have negotiated the purchase of a new home in a rapidly growing Kansas City suburb. Kansas City Sav- ings and Loan Association has approved their loan request for $270,000, which represents 90 percent of the $300,000 purchase price. Before closing the loan, the Perkins must obtain homeowner’s insurance for the home. The Perkins currently have an HO-4 renter’s insurance policy, which they purchased from Calvin’s bridge partner, Gene Patterson, who is an agent with the Roberts Insurance Company. To learn about the types of available homeowner’s insurance, Calvin has discussed their situation with Gene, who has offered them several homeowner’s policies for their consideration. He has recommended that the Perkins purchase an HO-5 policy because it would provide them with comprehensive coverage.

Critical Thinking Questions 1. What forms of homeowner’s insurance are available? Which forms should the Perkins consider? 2. What are the perils against which the home and its contents should be insured? 3. Discuss the types of loss protection provided by the homeowner’s policies under consideration. 4. What advice would you give the Perkins regarding Gene’s suggestion? What coverage should they buy?

Answer 1

(1): Various forms of homeowner’s insurance are available and they are HO-1, HO-2, HO-3, HO-5 and HO-8. There are two other forms - HO-4 and HO-6 – that meet the requirements of renters and owners of condominiums.

The Perkins should consider HO-2, HO-3 and HO-5.

(2): The perils against which the home and its content should be insured are perils like fire or lightning, windstorm or hail, theft, vandalism, any form of civil commotion and riots, volcanic eruption, falling objects, weight of ice, snow or sleet, overflow of water or stream, freezing, sudden and accidental tearing apart and sudden and accidental damage from artificially generated electric current.

(3): The types of loss protection provided by homeowner’s policies under consideration are dwelling, loss of use, personal property, personal liability, medical payments to others.

The coverage can be for ‘actual cash value’ or ‘replacement cost’.

(4): My advice to Perkins will be that Gene’s suggestion is a sound suggestion and they should opt for HO-5 policy. This is because they are buying a new house and so a comprehensive form will cover them well. HO-5 covers same risks as HO-4 and the covered perils are dwellings, other structures and personal property covered against risks of direct physical loss except losses that are excluded specifically. I will advise them to carefully read the list of exclusions as well especially with regards to mold, storm/hurricane/flood damage and foundation/settling.