Question

Big Iron Casting Corporation (“BICC”) suffers a major fire and seeks to cash in on its $1,000,000 insurance policy. However, the claims adjuster concludes the actual loss is only $300,000. How much will BICC be able to collect? $300,000 – actual amount of loss $1,000,000 – face amount of the policy $650,000 – split the difference $0 – they tried to get more than they are entitled to so they lose their entire claim

Answer 1

Correct Answer:

$300000 - actual amount of loss

The insurance company will pay the amount, but it will only be based upon the actual cash value of the loss or replacement cost basis. In both ways, it will amount to $300000 that is the value of the lost asset.

$1000000 is only the maximum coverage of the losses and it does not mean that it will be paid even if value of loss is smaller.