Frank's property insurance requires periodic reporting of inventory values.Frank believes he can save money by under-reporting the inventory.Last period,Frank reported $200,000 when the value was really $400,000.Shortly after filing the report,when the value was $500,000,the inventory was destroyed.Ignoring any deductible,how much will Frank's insurer pay?

Question

Quizplus · Accepted Answer

Frank's insurer will pay based on the proportion of the reported value to the actual value at the time of the report. Since Frank reported $200,000 when the actual value was $400,000, he reported 50% of the actual value. Therefore, the insurer will pay 50% of the loss, which is $250,000 (50% of $500,000).

Frank's Property Insurance Requires Periodic Reporting of Inventory Values