Question

In: Accounting

Limit of Liability (LOL) method- the amount that an insurer would pay for a particular loss...

Limit of Liability (LOL) method- the amount that an insurer would pay for a particular loss if they were the ONLY insurer covering it.

Example:       

You buy two policies from Insurers A and B, respectively: FAA = $20,000 and FAB = $80,000. If a loss = $50,000 occurs and it is covered by both contracts, how do insurers pay for this loss?

  1. Determine a percentage to split the loss:
  1. The percentage of the loss should Insurer A pay for =
  2. The percentage of the loss should Insurer B pay for =
  1. Determine the amount payable by each insurer:
  1. How much should Insurer A pay for the claim?
  2. How much should Insurer B pay for the claim?

Solutions

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