Wayne Markus recently lost his house and contents in a bushfire that ravaged the area in which he lives. Wayne had previously contracted the construction of the house to a local building firm on land that he had been left in an inheritance from his late aunt about 5 years ago. The construction costs at the time totalled $180,000 and he spent $40,000 on various appliances, furniture, fixtures and fittings for the home (home contents). The current construction costs for a similar house would be $260,000 and the cost of replacing his home contents would be $45,000. The market value of the home contents at the time of the fire was $15,000. Luckily for Wayne, he had a current home and contents insurance policy with the HAH Insurance Company at the time of the bushfire.
a) Calculate the total value of the insurance claim to be made by Wayne if the home and contents policy was a replacement value policy.
b) Calculate the total value of the insurance claim to be made by Wayne if the home and contents policy was an indemnity value policy.
c) Comment on the likely premiums payable on each of the policies offered in parts a) and b) of this question - that is, although the sum insured is the same, will the premiums also be the same?

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The Answer of Wayne Markus recently lost his house and contents in a bushfire that ravaged the area in which he lives. Wayne had previously contracted the construction of the house to a local building firm on land that he had been left in an inheritance from his late aunt about 5 years ago. The construction costs at the time totalled $180,000 and he spent $40,000 on various appliances, furniture, fixtures and fittings for the home (home contents). The current construction costs for a similar house would be $260,000 and the cost of replacing his home contents would be $45,000. The market value of the home contents at the time of the fire was $15,000. Luckily for Wayne, he had a current home and contents insurance policy with the HAH Insurance Company at the time of the bushfire.
a) Calculate the total value of the insurance claim to be made by Wayne if the home and contents policy was a replacement value policy.
b) Calculate the total value of the insurance claim to be made by Wayne if the home and contents policy was an indemnity value policy.
c) Comment on the likely premiums payable on each of the policies offered in parts a) and b) of this question - that is, although the sum insured is the same, will the premiums also be the same?

Wayne Markus Recently Lost His House and Contents in a Bushfire