560. Cash Balance. - A slightly different problem arises when it is required to find the amount of cash needed to close an account on a certain date. The amount needed is called the cash balance on that date. 561. Face Balance. The difference between the debits and the credits of an account is the face balance of the account. On the due date, the cash balance is the same as the face balance. If the payment is made after the due date, the cash balance is greater than the face balance, since the face balance draws interest from the due date. If the payment is made before the due date, the cash balance is less than the face balance, since early payment entitles the debtor to a discount. Example. Find the cash balance of the following account, June 15, 1916, interest being 6%. = $22,224.16 Cash Balance. = Face Balance + Int. Bal. We first compute interest on each bill from the date it is due to June 15. Then we compute interest on each payment from the date it is made to June 15. The difference of the sums of these is the interest balance. In this case the interest on the payments is less than the interest on the bills. Hence the difference is added to the face balance to obtain the cash balance. WRITTEN EXERCISES In the accounts on pages 424 and 425 find the cash balance of Example 1 on April 1, 1917, of Example 2 on Dec. 15, 1916, of Example 3 on Dec. 1, 1917, of Example 4 on Aug. 1, 1916, of Example 5 on Aug. 1, 1914, of Example 6 on Dec. 1, 1915, of Example 7 on June 1, 1916. CHAPTER XXXIX PROPERTY INSURANCE 562. Insurance deals with problems arising from contracts in which one party agrees to indemnify another in case of damage from specified causes, to specified things or persons and in a specified time. 563. The Insurance Policy. - A written or printed contract containing the provisions of an agreement to insure is called an insurance policy. 564. Parties to an Insurance Contract. The insurer is the party which agrees to indemnify another, and the party so indemnified is the insured. 565. Kinds of Policies. A valued or closed policy agrees to pay a specified sum in case a certain damage is sustained. An open policy provides insurance for an indeterminate amount, depending upon the quantity of goods insured at the time of damage. Thus a fire insurance policy covering goods stored in a warehouse insures whatever goods may be in the warehouse at the time of fire. At the end of the year the average amount of goods in the warehouse is computed and the premium fixed accordingly. 566. Premium. Rate. The amount paid by the insured to the insurer in consideration of the insurance is called premium. In the case of property insurance the premium is usually figured as a certain rate per cent of the amount insured. This is called the insurance rate. The rate varies greatly with the kind of property insured, and the length of time for which it is insured. 567. Kinds of Property Insurance. There is insurance against damage by fire, flood, and hail. There is marine insurance, river insurance, live stock insurance, and transit insurance which guarantees safe delivery. There is insurance against burglary and other theft, etc. This book treats particularly of fire insurance. 568. Long and Short Term Rates. The standard period for which fire insurance rates are quoted is one year. Three-year policies are usually issued for a premium equal to two and a half times the yearly premium and five-year policies for a premium equal to four times the yearly premium. For terms less than one year higher rates are charged. The following table shows the short term rates adopted by the Western Union of Underwriters. 9% annual prem. 80 Days. 38% annual prem. 85 Days. 39% annual prem. 7 Days. 8 Days.. 9% annual prem. 9 Days...10% annual prem. 10 Days...10% annual prem. 11 Days...11% annual prem. 12 Days...12% annual prem. 13 Days...13% annual prem. 14 Days...13% annual prem. 15 Days...14% annual prem. 16 Days...14% annual prem. 17 Days. 15% annual prem. 18 Days...16% annual prem. 19 Days...16% annual prem. 20 Days...17% annual prem. 25 Days...19% annual prem. 30 Days...20% annual prem. 35 Days...23% annual prem. 40 Days...26% annual prem. 45 Days...27% annual prem. 90 Days or 3 mo... 40% annual prem. 105 Days... 120 Days or 135 Days. 4 mo.. 45% annual prem. 50% annual prem. 55% annual prem. 150 Days or 5 mo... 60% annual prem. 270 Days or 9 mo... 300 Days or 10 mo... 90% annual prem. 95% annual prem. 330 Days or 11 mo... 360 Days or 12 mo...100% annual prem. 569. Insurance Agent Broker. - Insurance companies are represented in various localities by agents who solicit insurance, write up policies, collect premiums, etc. These are called insurance agents and are regarded as the agents of the insurance company. The insurance broker does pretty much the same kind of work as the insurance agent, but he is legally the agent of the insured. 570. Ordinary Policy. An ordinary policy stipulates the amount to be paid in case of loss. Under such a policy the company pays the full amount of the loss up to the amount of the policy. 571. The Average Clause. One policy covering goods in different localities frequently contains a clause which stipulates that the company issuing the policy will pay only such proportion of the total loss as the amount insured bears to the total value of the property. Such a clause is called an average clause. 572. Three-fourths Value Clause or Coinsurance Clause. — In some insurance policies it is stipulated that the property shall be insured for at least three-fourths its actual value. The purpose of the average clause is to guard against a small insurance policy on extensive property scattered in many different localities. Clearly such a property is very much more liable to a small fire than to one which will destroy the whole property. The purpose of the three-fourths value clause is to guard against a small insurance on valuable property with good fire protection. As in the case of scattered property, such property is more liable to a small fire than to one which will destroy the whole property. On buildings (brick or better) there is a reduction of 30% of premium if building is insured for 90% of value, a reduction of 25% if insured for 80% of value, and a reduction of 10% if insured for 70% of value. For contents of building these reductions are 20%, 15%, and 10% respectively. 573. Apportioning Loss. In case there are several insurance policies on the same property the loss is apportioned among them in proportion to the amount of the policies. Thus, a loss of $21,000, covered by three policies of $16,000, $24,000, and $30,000, will be apportioned among them in the amounts $4800, $7200, $9000. The loss is of the total insurance and each company pays of the amount of its policy. 574. Canceling Policies. Usually insurance policies contain a provision whereby they may be canceled at the option either of the insurer or the insured. If the insurer requests the cancellation of the policy, he returns a part of the premium which bears the same ratio to the whole premium as the unexpired part of the term bears to the whole term. If the insured requests the cancellation the premium charged for the expired part of the term is according to short term rates. |