James and Megan Webb recently purchased a home for $300,000. The home is insured

Question

James and Megan Webb recently purchased a home for $300,000. The home is insured under an HO-3 policy for $250,000 with no endorsements attached. Megan collects antiques for a hobby. James has a stamp collec- tion that contains several rare stamps. The couple also owns a 30-foot sailboat that they use on weekends. a. Assume you are a risk management consultant who has been asked to evaluate the couple’s HO-3 policy. Identify three endorsements that James and Megan may wish to purchase to modify their HO-3 policy. b. Explain how the above HO-3 policy would be modified by each endorsement identified in your answer to (a) above. c. For each of the following losses, indicate whether Section II of the homeowners policy would provide full coverage for the loss. If full coverage would not be provided, explain why.

Explanation / Answer

Three endorsements that James and Megan may wish to purchase to modify their HO-3 policy are an inflation guard endorsement, scheduled personal property endorsement with an agreed value loss settlement, and a watercraft endorsement. b. James and Megan's home is only insured up to $250,000, but with the worth of the home at $300,000, this means they run the risk of being underinsured in the event of a total loss. Even though their home insurance coverage falls within 80% of the homes replacement cost, this does not account for the inflation of the home's value. If inflation runs at a few percentage points every year, their insurance may soon not fall within the 80% of value coverage needed to replace their home. This would mean that if inflation caused their home value to rise too much, they could be forced to foot the difference in the bill in the event of a total loss. With inflation guard endorsement your policy coverage will increase a set percent each year in the event your home's value increases, covering the increased difference needed to replace your home from inflation. A scheduled personal property endorsement would provide broader coverage for James and Megan's collectable antiques and stamp collection, which currently are under a very limited coverage amount under their unendorsed home insurance policy. With this endorsement, they can list these items in a schedule and insure them for a specific amount agreed to by the insurer.

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