As the owner of a successful business, you have just purchased an additional type of property insurance coverage known as business interruption insurance. This insurance protects the profits that a company would have earned had there been no problem. Business interruption insurance covers damages caused by all types of perils, such as fires, tornadoes, hurricanes, lightning, or any other disaster except floods and earthquakes. This insurance pays for "economic" losses incurred when business operations suddenly cease. These include loss of income due to the interruption and additional expenses (e.g., leases; relocation to temporary facilities; overtime to keep up with production demands; recompiling of business, financial, and legal records; and even the salaries of key employees). Your coverage provides insurance reimbursement for 80% of any losses. Your company pays the other 20%. The annual premium is 4% of the income and extra expenses that you insure. (a)If you have purchased coverage amounting to $40,000 per month, what is the amount of your annual premium (in $)? $ (b)If a tornado put your company out of business for 4 1 2 months, what would be the amount of the insurance reimbursement for your economic loss (in $)? $

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

100%

As the owner of a successful business, you have just purchased an additional type of property insurance coverage known as business interruption insurance. This insurance protects the profits that a company would have earned had there been no problem. Business interruption insurance covers damages caused by all types of perils, such as fires, tornadoes, hurricanes, lightning, or any other disaster except floods and earthquakes.

This insurance pays for "economic" losses incurred when business operations suddenly cease. These include loss of income due to the interruption and additional expenses (e.g., leases; relocation to temporary facilities; overtime to keep up with production demands; recompiling of business, financial, and legal records; and even the salaries of key employees).

Your coverage provides insurance reimbursement for 80% of any losses. Your company pays the other 20%. The annual premium is 4% of the income and extra expenses that you insure.

(a)If you have purchased coverage amounting to $40,000 per month, what is the amount of your annual premium (in $)?

(b)If a tornado put your company out of business for

months, what would be the amount of the insurance reimbursement for your economic loss (in $)?

Expert Solution

Step 1

Annual premium can be calculated by using the following formula.

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions