Question

A building and its contents are insured under BPP with the agreed value option in effect. The limit of insurance is $100,000 with a $5,000 deductible. The agreed value shown in the policy is $1,500,000. How much will the insurer pay if the insured sustains a $300,000 loss by an insured peril?

Answer 1

Under a Business Personal Property policy with an agreed value option, for a loss of $300,000 with a $100,000 limit and a $5,000 deductible, the insurer would pay out $295,000. This takes into account the deductible but not proportionate reductions as the loss is within the agreed value.

Step-by-step explanation:

The question pertains to how the insurer would compensate for a loss under a Business Personal Property (BPP) policy with an agreed value option. With a loss of $300,000 and an agreed policy value of $1,500,000, assuming the insurance covers the full extent of the loss above the deductible, the payment from the insurer would be calculated by subtracting the deductible from the loss. Therefore, the insurer would pay $295,000, which is the loss of $300,000 minus the $5,000 deductible.

This example, however, must consider the actual terms of the agreed value option, a specific clause related to the valuation of the insured property. Under the agreed value option, the insurer and insured agree on the value of the property for a specified period, which can affect loss settlements. In this scenario, since the loss does not exceed the agreed value, the typical proportionate calculations of underinsurance do not apply.