Real-Life Math
You are an insurance broker. One day a customer calls your office and tells you that he has to reinsure his restaurant and he is shopping around for the best policy. He wants to know what kinds of insurance he needs to buy and about how much he will have to pay.
As a broker, it is your job to ask a few different insurance companies for estimates of how much his policy will cost. You have to find the best value for your client. You do have an idea of how much the going rate is, so you can give him a rough estimate of what he will be looking at.
You travel over to his restaurant to look over the contents and his assets. After reviewing his inventory and his finances (the "books") you have some concrete numbers to work with. You roll up your sleeves and get out your scratch pad.
You figure that he will need 3 different types of insurance in 1 package:
- Insurance for the contents of his restaurant -- this will insure equipment in case it is damaged or ruined.
- Insurance on his earnings -- this will protect him in case of a fire, for example, where the business must close down for a few months. This insurance means he can continue to pay his lease and employees and won't be bankrupted.
- Liability insurance -- this will protect him from customers who might sue him.
Altogether, there is about $89,000 worth in contents. Looking over his books, you see sales of $335,000 a year. The cost of food and overhead was $100,500.
From your knowledge of the going insurance rates, you think that the insurance company will charge him $0.50 per every $100 for content insurance, $0.20 per $100 to insure the earnings, and $2 per $1,000 in sales for liability insurance.
How much can he expect to pay to insure his restaurant?