Zach Is Applying for Insurance for His New Home

question 83

Multiple Choice

Zach is applying for insurance for his new home.Which of the following is correct?

• A) He should base the amount of insurance on the price he paid for it.
• B) He should insure the building for its replacement value to receive the full cost of repairing or replacing it.
• C) He should use the actual cash value method for settling claims to receive the full cost of repairing or replacing his personal belongings.
• D) His personal belongings should automatically be covered with his home at 125% of his home's insured amount.
• E) His insured amount should remain the same as long as he lives in his house.

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Definitions:

Risk Averse

A description of an individual's or entity's preference to avoid risk, favoring certainty in investment or economic decisions.

Expected Utility

A concept in economics that calculates the utility expected from different outcomes, taking into account their probabilities.

Total Utility

The complete contentment derived from the consumption of a specific amount of a product or service.