Question

Encik Pawi has a house with an insurable value of RM 400,000. The house is insured using a fire insurance that allocates co-users 80% of the usable value and a deductible value of RM 2,300. If the house caught on fire, and the loss amount is RM 30,000, calculate the amount of compensation that Encik Pawi will receive if he insures his house at a sum of RM 150,000.

a. RM 8,950.00
b. RM 11,250.00
c. RM 11,762.50
d. RM 14,062.50

Answer 1

Encik Pawi's insurance compensation, after considering the co-insurance clause and deductible for his underinsured property, will be RM 8,950.

Step-by-step explanation:

Encik Pawi's fire insurance claim calculation involves several steps, taking into consideration the insurance principle of indemnity, the co-insurance clause, and the deductible. Since the house has an insurable value of RM 400,000 and is insured for RM 150,000, we need to determine if underinsurance is present. For properties, the co-insurance formula is (Amount of insurance / Insurable value) x Loss amount - Deductible. Applying this formula:

• Calculate underinsurance: (RM 150,000 / RM 400,000) = 0.375
• Apply underinsurance to the loss: 0.375 x RM 30,000 = RM 11,250
• Subtract the deductible: RM 11,250 - RM 2,300 = RM 8,950

The amount of compensation that Encik Pawi will receive is RM 8,950.