If Romesh has two insurance policies with sums insured of £20,000 and £30,000 and a claim for £30,000, how much would Policy A pay?

If Romesh has two insurance policies with sums insured of £20,000 and £30,000 and a claim for £30,000, how much would Policy A pay?

• A. £15,000
• B. £20,000
• C. £30,000
• D. £10,000

Answer: (D)

In the scenario described, Romesh has two insurance policies with different sums insured. When a claim arises, insurers will often apply the principle of contribution if the insured has multiple policies covering the same risk. In this case, Romesh is submitting a claim for £30,000, which exceeds the total of his insurance coverage of £50,000 (£20,000 from Policy A and £30,000 from Policy B). To determine how much Policy A would pay, the contribution formula is applied. This formula calculates the payout based on the sum insured for each policy in relation to the total coverage. Policy A has a sum insured of £20,000 and Policy B has £30,000, which totals £50,000. The contribution from Policy A is calculated as follows: 1. Calculate the share of each policy: - Policy A's proportion of total coverage = £20,000 / £50,000 = 0.4 - This means that Policy A covers 40% of any loss. 2. Calculate what Policy A would pay based on the claim amount: - Policy A's contribution = 0.4 x £30,000 = £12,000 Since Policy A's maximum payout is limited

In the scenario described, Romesh has two insurance policies with different sums insured. When a claim arises, insurers will often apply the principle of contribution if the insured has multiple policies covering the same risk.

In this case, Romesh is submitting a claim for £30,000, which exceeds the total of his insurance coverage of £50,000 (£20,000 from Policy A and £30,000 from Policy B). To determine how much Policy A would pay, the contribution formula is applied. This formula calculates the payout based on the sum insured for each policy in relation to the total coverage.

Policy A has a sum insured of £20,000 and Policy B has £30,000, which totals £50,000. The contribution from Policy A is calculated as follows:

1. Calculate the share of each policy:

• Policy A's proportion of total coverage = £20,000 / £50,000 = 0.4

• This means that Policy A covers 40% of any loss.

2. Calculate what Policy A would pay based on the claim amount:

• Policy A's contribution = 0.4 x £30,000 = £12,000

Since Policy A's maximum payout is limited