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Henry Winters insured his home for €200,000 with Allianz - Leaving Cert Business - Question 10 - 2020
Question 10
Henry Winters insured his home for €200,000 with Allianz. The market value of the house is €250,000. A chimney fire caused €36,000 worth of damage. (i) Calculate th... show full transcript
Worked Solution & Example Answer:Henry Winters insured his home for €200,000 with Allianz - Leaving Cert Business - Question 10 - 2020
Step 1
Calculate the amount of compensation Henry will receive from Allianz.
Answer
To find the compensation amount, we use the formula:
ext{Insured Value} imes rac{ ext{Loss Suffered}}{ ext{Actual Value}} = ext{Compensation}Substituting the known values:
200,000 imes rac{36,000}{250,000} = 28,800Therefore, the amount of compensation Henry will receive from Allianz is €28,800.
Step 2
Explain why Henry receives this amount of compensation.
Answer
Henry receives this amount of compensation because he is underinsured. The principle of indemnity requires that the insured person does not receive more than the actual loss. The formula used reflects this principle, ensuring that Henry only receives compensation proportional to the loss suffered relative to the insured value and the actual value of the house.