Solve the problem. Use the fire insurance rate table if needed. Rates are for each $100 of insurance. Round to the nearest dollar.
-SLM Instruments owns a class B building with a replacement cost of $602,000. Contents are valued at $302,000. The area is rated 3. Find the fire insurance annual premium.

Question

Solve the problem. Use the fire insurance rate table if needed. Rates are for each $100 of insurance. Round to the nearest dollar. 
-SLM Instruments owns a class B building with a replacement cost of $602,000. Contents are valued at $302,000. The area is rated 3. Find the fire insurance annual premium.

Quizplus · Accepted Answer

First, we need to calculate the total amount of insurance needed by adding the replacement cost of the building ($602,000) to the value of the contents ($302,000), which is a total of $904,000. 
Then, we need to find the rate for the area rating of 3 from the fire insurance rate table. From the table, we can see that the rate for class B buildings with an area rating of 3 is $0.56 per $100 of insurance. 
To find the annual premium, we need to multiply the total amount of insurance needed ($904,000) by the rate ($0.56 per $100), and then divide by 100 to convert from cents to dollars. 
So, the annual premium is: 
($904,000 × $0.56) ÷ 100 = $5,062.40 
Rounding to the nearest dollar, we get an answer of $5,063. Therefore, the best choice is C. Step 1: Calculate the insurance amount for the building:
$602,000 x 0.8 = $481,600 (since the building is class B, the rate is 80% of the replacement cost)

Step 2: Calculate the insurance amount for the contents:
$302,000 x 1 = $302,000 (since the contents are rated 1)

Step 3: Calculate the total insurance amount:
$481,600 + $302,000 = $783,600

Step 4: Use the fire insurance rate table to find the annual premium rate for the area rating of 3:
$1.82 per $100 of insurance

Step 5: Calculate the annual premium:
$783,600 ÷ $100 x $1.82 = $14,244.72 (round to nearest dollar)

Answer rounded to nearest dollar is: $5,063.

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