Bob and Janet have $150,000 in their bank account and are wondering if they should utilise this available fund as self-insurance for their business. You have identified their total equipment and goods to be valued at $480,000, so they think they could take out a policy for $330,000 to help reduce the premium.

They think the risk of a total loss is unlikely and would be happy to self-insure using their funds in the bank. However, in the event of a smaller claim, which they believe is more likely, Bob and Janet would like to have full cover.

If they incur a loss of $20,000, explain if they will be paid the whole $20,000. If not, explain to them how much they can be paid and what factors impact the amount paid.

Answer rating: 100% (QA)

In this scenario Bob and Janet are considering selfinsuring a portion of their business assets and p... View the full answer