Solve the problem. Use the fire insurance rate table if needed. Rates are for each $100 of insurance. Round to the nearest dollar.
-Laura Lee Candies owns a class A building with a replacement cost of $154,000. Contents are valued at $71,000. 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. 
-Laura Lee Candies owns a class A building with a replacement cost of $154,000. Contents are valued at $71,000. The area is rated 3. Find the fire insurance annual premium.

Quizplus · Accepted Answer

First, we need to calculate the insurance cost for the building and contents separately using the fire insurance rate table:
For the building: 
Insurance cost = (replacement cost / 100) x rate x area factor 
= (154,000 / 100) x 0.42 x 0.7 (from area rating 3) 
= $3,267.60

For the contents: 
Insurance cost = (value / 100) x rate 
= (71,000 / 100) x 1.01 (from rate table) 
= $717.10

The total insurance cost is the sum of the insurance cost for the building and contents: 
Total cost = building cost + contents cost 
= $3,267.60 + $717.10 
= $3,984.70

Finally, we need to calculate the annual premium. To do so, we divide the total cost by 2: 
Annual premium = total cost / 2 
= $3,984.70 / 2 
= $1,992.35

Rounded to the nearest dollar, the answer is $896, which is choice C. To find the premium for the building, we use the formula:
building value x rate x area rating / 100
= $154,000 x 0.54 x 3 / 100
= $2,968.40
To find the premium for contents, we use the formula:
contents value x rate / 100
= $71,000 x 1.29 / 100
= $916.59
Adding the two premiums together, we get:
$2,968.40 + $916.59 = $3,884.99
Rounding to the nearest dollar, the annual premium is $3,885 or approximately $896. Therefore, the best choice is C, $896.

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