Reference no: EM131057745
1. Assume Alvin purchases a home for $200,000 and also purchases a homeowners’ policy. He is not concerned about a total loss as he lives very near a fire station, so he purchases $160,000 of coverage on his home, knowing that this homeowners policy has an 80% coinsurance clause. Should he have a $20,000 loss on his home, how much with his insurer pay for the loss? Please show your work.
2. Several Other Insurance clauses may be included in property insurance policies. Sam’s policy has a pro rata provision. Without disclosing to the insurers that he is purchasing multiple policies on his $20,000 building, Sam purchases a property policy with Company A for $20,000 and then purchases a policy from Company B for $30,000. Should Sam have a $10,000 loss to his building, how much will be paid by each insurer? Please show your work.
a. InsurerA _____________
b. Insurer B _____________
3. Coinsurance clauses are found in many property policies as well as in many health insurance policies, although the purpose of each is vastly different. Explain the purpose of the coinsurance in both types of insurance. Coinsurance in property insurance: Coinsurance in health insurance:
The market is in equilibrium with the required return
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