West Virginia Property and Casualty Licensing Practice Exam

If Zach's total estimated loss of business income is $300,000 but he reduces it by renting equipment, how much will the insurer indemnify him following a covered loss?

1. $300,000

2. $370,000

3. $220,000

4. $150,000

The correct answer is: $370,000

In this scenario, the correct amount the insurer will indemnify Zach after a covered loss depends on understanding how business income losses are calculated and how reductions in these losses work. Zach initially estimates a total loss of business income at $300,000. However, by renting equipment, he potentially mitigates some of that loss. Insurance policies that cover business income often allow for adjustments based on the expenses that help reduce the loss. Renting equipment would be considered an expense that aids in minimizing downtime and loss of income. If Zach incurs additional costs to rent equipment which allows him to continue operations to some extent, this expense would generally be added to the total income loss estimate. Therefore, if his overall situation improves due to renting the equipment and assuming the rented equipment's costs are significant enough, the insurer would then indemnify him based on the adjusted loss. The figure of $370,000 suggests that the rental costs have indeed provided enough of a benefit in mitigating losses to reflect this increased total. In this case, Zach's total estimated loss would be viewed through the lens of how effectively he managed to reduce his business income loss by incurring those rental expenses. Thus, considering both the initial loss and the effectiveness of the rented equipment in reducing the impact of that