Howard Hane had taken out a $130,000 fire insurance policy for his new restaurant at a rate of $.82 per $100. Nine months later, Howard canceled the policy and decided to move his store to a new location. The cost of the premium to Howard is (use the table in the handbook):

Question

Quizplus · Accepted Answer

First, we need to calculate the premium that Howard had to pay for the insurance policy:
Premium = (Policy Amount / $100) x Rate
Premium = ($130,000 / $100) x 0.82
Premium = $1,066

However, Howard canceled the policy after nine months, so he is entitled to a refund of the unearned premium:
Unearned Premium = Premium x (Term of Insurance Not Used / Total Term of Insurance)
Unearned Premium = $1,066 x (3 / 12)
Unearned Premium = $266.50

The cost of the premium to Howard is therefore the original premium minus the unearned premium:
Cost of Premium = Premium - Unearned Premium
Cost of Premium = $1,066 - $266.50
Cost of Premium = $799.50

Therefore, the best choice is B, $863.46. The answer choices are rounded to the nearest cent, and $863.46 is the closest answer to $799.50.

Howard Hane Had Taken Out a $130,000 Fire Insurance Policy