 Personal finance practice problem using OneNote. Recovery period for maintenance to reduce insurance premium. Prepare to get financially fit by practicing personal finance. You're not required to, but if have access to OneNote, would like to follow along when the icon left-hand side practice problem tab in the 8110 recovery period for maintenance to reduce insurance premium tab. Also take a look at the immersive reader tool. Our practice problems usually in the text area too with the same name, same number, but with transcripts. Transcripts that can be translated into multiple different languages and either listened to or read in them. Informations on the left-hand side, we are imagining a situation where we have a current premium on our homeowner's insurance policy of $500 and the homeowner's insurance company is saying, look, if you just install these couple items, do a little bit of maintenance, which will cost you upfront a bit. We can lower or give a discount on your homeowner's insurance premium. So what we'll do is we'll calculate what the discount will be and we'll calculate a type of calculation which is quite common anytime you have a scenario like this, a scenario being where you're gonna be putting money out upfront in order to get savings or a benefit future cash flows in the future. And you might say, well, how long? How long? Well, the take before I recover the money that I had to put down upfront. And then you can go further than that taking the consideration time value of money kind of calculations. We won't go to there now, but that's what will, that's be the calculation. So the homeowner's insurance company is saying, hey, look, if you put dead volts on your home, then we're less likely to have to pay out because it's less likely that you're going to be robbed and we'll be able to lower your premiums by 4%, but it's gonna cost you like $175 to install the dead volts. Again, we probably would be thinking dead volts might be a good idea. Yeah, just anyways, kind of want the dead volts. So I don't know where you, you know where you live right now. You might want the dead, but anyways, then the second one says we have the discount to install a smoke detector. So once again, the insurance company saying, you know, if you had a smoke detector, then we are less likely that we have to pay out in the event of a fire. And so that would be good for us. And we're like, what those squeaky things that, you know, every time I cook, it yells at me the smoke detector, but no. So if we install that, it's gonna be the 3% and the cost will be 48. So again, both of these items, we probably would be saying it's probably a safety issue more than an issue just to lower the homeowner's insurance as well, you might be thinking, but we're gonna do it just from a cost perspective here and say, okay, well, Wednesday, how much, I'm not doing it unless it saves me some money on my homeowner's insurance. So we're gonna do the calculation on how much it's gonna save us. So the first one, we got the discount on the deadbolt locks. So we're gonna say the original premium is 500. We got a 4% discount. So that means we're gonna get $20 on the discount. So we could say 500 times 0.04, which of course would be the 20. If we look at the discount for the smoke detectors, if we put that in place, we've got the 500 times the 3%, which would give us the 15, which of course would be the 500 times the 0.03. These again, great tools, these quick little calculations even are great to do in Excel. Just setting up your little table here just to visualize your tables, working on putting the underlines, making a percent type of cell. You can get to be able to do these quite quickly, even though you can visualize them in your head, but those are kind of the best ones to do in Excel at first, at least because that allows you to kind of visualize what's in your head on a table format. So then we could say that the total discount would be the 20 plus the 15 or the 35, if we did both of them. But wait, we had to put down $175 for those dead volts and $48 for this one. So let's take that into consideration. So we got the recovery period. When am I gonna get paid back for those dead volts? Well, if I did the dead volts, I got 175 that I gotta put down up front to buy those dang dead volts. And then I'm gonna say that that's divided by $20 on the discount. So 175 we gotta do to install it, divided by $20 savings. It's gonna take us 8.75 recovery period on dead volts. So 8.75, if that's our yearly savings. So it could take us some time just with regards to the discount on them to recover. It's like that, it takes eight years to recover my 175. I'm not doing it. I'm sleeping. I don't even need a door. I'll just put a towel up on the thing. No. But anyway, so we got the next one. So the next one is the cost to the smoke detector, $48 for those squeaky things that yell at me every time I cook a decent meal. So we got 48 divided by 15 is gonna be 3.2 for the recovery period, 3.2 years to recover that one. So then, so that's a typical kind of calculation again, anytime if you're looking just from a financial perspective to try to say, okay, if I have to put money down upfront and you're gonna say that there's savings or I'm gonna have a future cash inflow, how long will it take for that future cash inflow to account for or recoup me at least for the dollar amount upfront. Now note that of course that doesn't take into consideration the time value of money. So if you're talking about a long ways out, maybe eight years starts to get kind of a long ways out, you could consider the fact that there's a decline in the value of money in the future and so on with inflation and whatnot, but we won't dive into that here. So we could also do kind of a combined recovery period. You could say, if I tried to combine these together, so if I took the savings we had or the cost of both of them, which was the 175 plus to 48, that's gonna give us the 233 and then we've got the discount of the 35 for both of them, which is the 20 plus the 15, that gives us our 35. So if I take then the 223 divided by 35, then we've got this 6.4 about in years for the combination between the two of them. But of course, if I look up top, this first one took the longer point to recover it, 8.8, it also costs more 175, which is part of the reason and then we've got the cost to do it, it's only 48 and so we've got a recovered period of 3.2. If we tried to combine them together, then we've got the 6.4. And also just note with these calculations, if we're talking in years here, then that 0.4 is gonna be a fraction of a year. So you can say, okay, well, if there's 12 months times 0.4, it's gonna be six years and four to five months or something like that. So that's a typical kind of back of the envelope, as they would say type of calculation if you're just looking at the money that would be returned. And if you're talking about bigger dollar amounts, then you're gonna might do other calculations to take into consideration the time value of money as you're receiving those future cash flows in the future.