Question 1: General principles of risk management and insurance law [10] 1.1. Linda's household content has been insured for R700 000. However, the true value of his household content is R1050 000. After a fire in Linda's main bedroom en-suite, she submits a claim for R300 000. Choose the correct amount that will be paid to Linda by the insurance company. A. R0 B. R54 545 C. R200 000 D. R300 000 E. None of the above

To determine the payment for Linda’s claim, we must consider the principle of underinsurance. Since Linda has insured her household content for R700,000 when its true value is R1,050,000, she is underinsured by 33.33%. This means that if she submits a claim for R300,000, her payout will be reduced proportionally. Calculating the payout: (Insured Amount / True Value) x Claim Amount = (R700,000 / R1,050,000) x R300,000 = R200,000. Therefore, the correct answer would be C. R200,000. When it comes to understanding insurance claims, one common mistake is assuming that the payout will always equal the claimed amount. In this case, underinsurance penalizes the insured by reducing the claim amount proportionally. Always ensure your valuables are properly insured to avoid substantial out-of-pocket losses!