Ricardo Juarez is purchasing a HO insurance policy.He is very concerned about inflation and wants to make a determination about purchasing an optional inflation protection rider. Ricardo has identified several scenarios and wants to know how often he needs to revisit his coverage to maintain at least 80 percent of replacement cost Base all calculations on an initial home value of S250,000 and initial coverage of 100 percent on the dwelling and contents
a Ricardo believes that current housing prices will increase at 4 percent per year How long will his coverage meet the 80 percent rule if he does not buy inflation protection? How long will he be covered if he purchases an inflation protection rider that offers annual compound increases of 3 percent?
h Given recent declines in housing values,Ricardo believes a recovery is coming and that housing prices will increase at 7 percent per year for the next five years before slowing to a permanent 4 percent annual appreciation rate.How long will his coverage mect the 80 percent rule? First assume that Ricardo does not purchase an inflation protection rider, and second assume that he purchases an inflation protection rider that offers annually compounded increases of3 percent.
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Ricardo believes that housing prices still have a way to fall before any meaningful recovery He believes that future housing prices will decrease at an annual rate of 4 percent for the next three years before the long-term trend of 5 percent annual increases resumes.Assuming that he does not purchase an inflation protection rider.how long will his coverage meet the 80 percent rule?
Ricardo believes that future price increases will be very unstable. With this uncertainty,he wants to have the inflation nider protection of 3 percent compounded annually Assume actual housing price changes for the next five years are 3,-7.-2,8,and 12 percent.Will his coverage meet the 80 percent rule at the end of this five-year period?What if he does not purchase the optional rider?
Based on the results from the analyses what can be said about how frequently insurance coverage needs to be reevaluated?
