Question

An insurance policy covering fire damage to stock pays 70% of the costs for the first $1,000 and all of the cost thereafter up to a total of $7,000. Following a claim, the claimant had to pay an additional $2,000 to replace damaged stock. How much was the stock worth?

a) $9,000
b) $10,000
c) $11,000
d) $12,000

Answer 1

The total worth of the stock before the fire damage was $9,000. This was determined by adding the maximum coverage amount from the insurance policy ($7,000) to the additional amount the claimant paid out of pocket ($2,000).

Step-by-step explanation:

To calculate the total value of the stock, we need to determine how much the insurance paid and how much the claimant paid out of pocket. The insurance policy covers 70% of costs for the first $1,000, and the remaining 30% is covered by the policyholder. Then, the insurance covers 100% of costs thereafter up to $7,000. The claimant paid an additional $2,000 to replace damaged stock, which means that the damage exceeded the insurance policy's maximum coverage.

First, we find the amount not covered by insurance for the initial $1,000: $1,000 × 30% = $300. Since the claimant paid $2,000 out of pocket and $300 is from the first $1,000, the remaining $1,700 is the amount over the insurance cap of $7,000. Adding the insurance's maximum coverage to the out-of-pocket expenses gives us: $7,000 + $2,000 = $9,000.

Therefore, the total worth of the stock before the fire damage was $9,000. The correct answer is (a) $9,000.