Question

A car valued at $Rs.4,00,000$ is insured for $Rs.2,50,000$. The rate of premium is $5\%$ less $20\%$. How much loss does the owner bear including the premium if value of the car is reduced to $60\%$ of its original value?

Answer 1

Value of the car is Rs. $4,00,000$

Value of insurance is Rs. $2,50,000$

Premium rate is $5$% less $20$%

$\therefore$ Premium$=5$% of $2,50,000$

$=12,500$

Additional $20$% of Rs. $12,500$ discount is

$20$% of Rs.$12,500$

$=2500$

$\therefore$ Net premium=Rs. $12,500-$ Rs.$2500$

=Rs.$10,000$

Car reduced to $60$% of its original values

$\therefore$ Loss$=(100-60)$% $=40$%

Loss$=40$% of Rs.$4,00,000$

=Rs. $1,60,000$

Claim$=\frac{insuredvalue}{propertyvalue}\times$loss

$=\frac{2,50,000}{4,00,000}\times 1,60,000$

=Rs. $1,00,000$

Loss=Rs. $1,60,000$

Loss claim=Rs.$1,00,000$

Net loss=loss-loss claim=Rs. $60,000$

Premium=Rs.$10,000$

$\therefore$Net loss including premium=Rs.$(60,000+10,000)$

=Rs.$70,000$