Andrew insured his home for ten million dollars. He made a lot of sacrifices to build his dream home and makes his insurance payments on time annually. Unfortunately, some years later his roof was badly damaged by a hurricane. Andrew was not too worried as he could claim from his insurance company.
He subsequently visited his insurance company and was informed that he could only receive 70% of the value of his roof because he was only insured for 70% of the present true value of his house.
(a) (i) Name the principle that applies in this case.
(ii) Explain the principle that applies in this case.
(iii) How could Andrew have avoided this dilemma?
(b) Outline three other principles of insurance that would apply to the case above.
(c) Discuss the importance of insurance to individuals and businesses in an economy and say how insurance thus benefits the economy.