BU353 Study Guide - Midterm Guide: Insurable Interest, Liability Insurance, Property Insurance
Document Summary
Basically the marking scheme is 1 mark per point made: mr. burke has purchased property insurance for his manufacturing plant. The current market value of the plant is ,000. The facility is damaged by a burst water pipe and the insurer estimates that the damage is ,000: why do insurers insist on consumers carrying full (or close to) full coverage? (2 marks) The rates used by insurers already take into account probability of total loss. Therefore the rate does not change with the amount of insurance purchased. Insured"s who insure for less than full value do not generate sufficient premium to cover actual losses that will occur. Insures insist on consumer carrying full value so that they collect adequate premiums: in this scenario what is the maximum proportion of losses paid by the insurer? (2 marks) 250,000 (325,000*90%) = 250,000 = . 8547 or 85% 292,500: what is the total amount paid by the insurer? (2 marks)
