Question

. The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?

Answer 1

A: $16,000

B: $8,000

Step-by-step explanation:

We add up each insurance:

Policy A + Policy B =

100,000 + 50,000 = 150,000

Now we weight each policy:

A: 100,000 / 150,000 = 2/3

B: 50,000 / 150,000 = 1/3

We apply this weights to each policy considering the loss:

A: 24,000 x 2/3 = 16,000

B: 24,000 x 1/3 = 8,000

Answer 2

Company A will pay $16,000 and Company B will pay $8,000.

Step-by-step explanation:

Pro rata method means allocating the amount to each company according to their percentage amount.

Here in this case,

Total Insurance amount = $100,000+50,000 = $150,000

Company A share if $24,000 loss occurs:

=
`(100,000)/(150,000) * 24,000 =` $ 16,000

Company B share if $24,000 loss occurs:

=
`(50,000)/(150,000) * 24,000 =` $ 8,000

Hence , Company A will pay $16,000 and Company B will pay $8,000.