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# risk management

## On the Loss Funding Option Slot

Smith's family should buy the homeowner's insurance at 50% of the property worth (Coverage A). The personal property cover (coverage c) would be 50% of that number. Annual fee of \$900 and deductible of \$250. And will be extended once through the coverage (A, B, C, and D). They were supposed to buy a 50 per cent homeowner's policy instead of a full one, so they would have had to spend an additional \$600 as a premium, and still the house is worth \$1667 per year. Probability= Loss value (based on replacement costs)/25% value of dwelling

Loss value= 25%Xdwelling replacement costs loss value=25%X175, 000=43750.

Dwelling cost = \$25,000+\$150,000=175,000
dwelling cost=25%X175,000=43750.

Probability=43750/43750=1

## Stage 2

Loss financing decisions should purchase \$25, 00 liability for section II of homeowner’s insurance policy with an annual premium of \$500.No need to buy any of the others in section 2, 3. To manage liabilities, the dog should be enrolled in professional dog obedience classes.

Probability of potential losses option 1(Smiths sued because of their dog bites a visitor home
Would be less value/defense costs
= \$ 50,000/\$ 240,000=0.208

## Stage 3

No purchase of any supplemental LTD insurance, the family should consider HMO health insurance was covering the entire family. Loss control option John should enroll in skiing lessons and snow sports helmet protect his head. Cost \$ 300.

Probability of distribution of potential losses
Medical expenses/lost wages
= \$13,000/\$30,000
=0.43

## Stage 4

The risk of premature death, an additional Purchase 100,000 life insurance on John’s life and \$50, 00 on Karen’s life. Sine they are planning to get another kid.

Probability of potential loss distribution if
John dies: loss value/\$400,000
\$72,000/\$400,000=0.18

If Karen dies probability= loss value/100,000
\$72,000/100,000=0.72

In conclusion, risk management should be focused on critical and most probable risks that could happen in life and order of their severity. House, car, health are but some of the things we should focus on insuring. ("Risk Management Tools," 2006). On financing decision, the probability is one, house owner insurance 0.208, health insurance 0.43 and life insurance 0.18 and 0.72 for John and Karen respectively.

## References

Risk Management Tools. (2006). Guidelines for Mechanical Integrity Systems, 203-230. doi:10.1002/0470048085.ch11