A house is worth 160 thousand and the furniture and appliances are worth 56 thousand. The owner has an opportunity to insure everything at 72% of the total value. The annual rate on the dwelling is 3.10 per 1000 and 3.65 on the personal property.
If the premium for a 3 year policy is 2.5 times the premium for a one year, how much will the owner save by taking out a three year policy ?
A. $251.97
First, let's multiply the total value of the house, 160k, by 72%, .72, to get a total of 115,200 insurable for the dwelling. Next divide 115,200 by 1000 to get 115.2 1k units times 3.10 annual rate to get 357.12 annual cost of insuring the dwelling.
Now, we find that the personal property value of 56k has an insurable level of 40,320 when we multiply the 72% limit times 56000. Then we divide 1000 into 40320 to see that we have 40.32 units of 1k at 3.65 per 1k of insurable value for the furnishings. Multiply 40.32 times 3.65 to get 147.168, rounded to 147.17.
Now, let's add the 357.12 for the house and 147.17 for the personal property and we get a total of 504.29 cost to insure the home per year.
If the premium is paid yearly for three years at 504.29 the owner will spend 1512.87.
On the other hand, if the owner pays for the insurance three years in advance at 2.5 times the annual rate we get a total of 1260.725 or rounded 1260.73.
Now, let's subtract 1260.73 from 1512.70 and we see that owner will save 251.97 by insuring for three years in advance.
I'm so hoppy about it !
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