UIUC Finance 230 Assignment 7: Car Accident & Insurance Claims, Assignments of Credit and Risk Management

Download UIUC Finance 230 Assignment 7: Car Accident & Insurance Claims and more Assignments Credit and Risk Management in PDF only on Docsity! UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN College of Business D E P A R T M E N T O F F I N A N C E Finance 230 Assignment 7 Fall, 2007 Due: October 19, 2007 For the first three questions, you have both the State Farm Car policy and the 2007-2008 U of I Student Injury and Sickness Insurance Plan for Undergraduate Students. Assime the following: 1. The average semi-private room rate (usual and customary) charged by each hospital is $500. 2. All treatments are medically necessary. 3. Unless otherwise indicated, all charges are considered to be the Usual and Customary fees. 4. Each situation is the only claim you have ever had while insured under this Insurance Plan. 5. All treatment is provided by plan providers or facilities and licensed providers 6. Unless otherwise indicated, each loss occurred during the academic year 7. You are a student. It is a Friday night during the semester and you want to drive your friends to Green Street to have fun. While you are waiting for your friends outside of Hendrick House, a car driven by an uninsured driver runs into your car. You hit your head on the window (you should have fastened your seat bell). Your friends call you an ambulance and you are hospitalized at Carle Hospital for 30 days to receive surgery. The surgeon charges you $20,000 for the surgery. The assistant surgeon charges $7,000. The anesthetist personally administered the anesthesia and remained in constant attendance during the surgery, and he charges you $10,000. You are billed $400 per day for hospital room and board, $6000 for operating room expenses and $3000 for medicine while in the hospital. You are billed $650 for the ambulance ride. It costs $2100 to repair your car, which had a $9,100 Actual Cash Value at the time of the loss. You would be entitled to a bodily injury award of $110,000 if the other driver had been insured. 1. What does your State Farm Car policy pay for this loss, in total? A. $25,000 B. $27,000 C. $112,000 D. $137,000 E. None of the above Explanation: Collision is covered under State Farm Car policy. Under collision provision, it pays for either repair fee or actual cash value, whichever is lower. Thus you receive $2100 - $100 (deductible) = $2000. In addition, this policy covers up to $25,000 for your medical expense under medical provision, and you are entitled to collect Min [100,000, 110,000 – 25,000] under uninsured coverage. Thus you will collect 2000 + 25,000 + 85,000 = $112,000 in total. 2. What is the Initial Benefit Payment under the U of I Undergraduate Student Insurance Plan? A. $18,900 B. $24,510 C. $33,650 D. $49,020 E. None of the above Explanation: The normal benefit payment is the amount of coverage that you can collect from your health insurance policy alone. Thus the payment is (400 * 30 + 6,000 + 3,000 – 2,100) + (20,000 + 7,000 + 10,000 + 650) *0.8 = 18,900 + 30,120 = 49,020 The initial benefit is half of your normal benefit, which is 49,020 * 0.5 = 24,510 3. What is the Total Payment the U of I Undergraduate Student Insurance Plan will make on this loss? A. $0 B. $24,510 C. $33,650 D. $49,020 E. None of the above Explanation: Your total medical payment is the following Eligible expense: 400* 30 + 6,000 + 3,000 + 20,000 + 7,000 + 10,000 + 650 = 58650 Normal Benefit: 49020 (from question 2) Initial Benefit is half of your normal benefit: 0.5 * 49020 = 24,510 Initial Benefit + other valid coverage (State Farm policy) = 24,510 + 25,000 = 49,510 Underinsured/Uninsured provision is NOT Other Valid Coverage under the Student Health Insurance policy because they are third party liability coverage. Additional Benefit payable: -lower of 49,510 - 24,510 = 24,510 58,650 - 49,510 = 9,140 Total Benefit: 24,510 + 9,140 = 33,650 We will also accept A (0) since there is a subrogation clause included in the Student Health Policy, so the health insurer, after making this payment of $33,650, has the right to recover that from the bodily injury award you received. 4. Based on the Commissioners 1980 Standard Ordinary Mortality Table (Appendix F in the text) how many 66 year old female per 1000 will die during the year? A. 13.39 B. 16.00 C. 16.57 D. 27.85 E. None of the above Explanation: According to Appendix F, 16 out of 1000 sixty-six years old female will die during the year. 5. What is the fastest rising cost for employers? A. Payroll B. Health care costs C. Employee entertainment D. General liability insurance E. Social Security taxes Explanation: According to Stephen D’arcy and Wall Street Journal, health care cost growth exceeds inflation rate, and it becomes the fastest rising cost for employers.