CASE STUDY (IBBI EXAM)

- B. Kanaga sabapathy
www.bkanagasabapathy.com

Part - 6

Case study :

One factory got damaged. The sum insured is Rs. 50,00,000/-. Claim made by the owner
- Rs. 10,00,000/-. The property is 20 years old. Present replacement rate of a similar new
building is Rs. 7,000/- per sq.m. Builtup area - 2,000 sq.ft.

1) What is replacement value of the building?

2) What would be the claim approved by insurance company?.

Opinion :

Data :

Sum insured = Rs. 50,00,000/-

Claim made by the owner = Rs. 10,00,000/-
Age of the building = 20 years
Built up area = 2,000 sq.ft.
Replacement cost = Rs. 7,000/sq.m.

Solution :

Builtup area = 2,000 sq.ft. or 185.87 sq.m.

Replacement rate = Rs. 7,000/sq.m.
Replacement value = 185.87 x 7,000
= Rs. 13,01,090/- (1)

Age = 20 years
Life assumed = 40 years (since it is a factory)
Salvage value = Nil (assumed)
20
Depreciation percentage = x 100 = 50%
40
Depreciation value = 0.5 x 13,01,090
= Rs. 6,50,545/-
 Depreciated value = 13,01,090 - 6,50,545
= Rs. 6,50,545/- (2)

Answers : 1) The replacement value is Rs. 13,01,090/-.

2) • The depreciated value (including the foundation is Rs. 6,50,545/-.

The owner has insured the building for Rs. 50,00,000/-. The sum
insured in adequate. These is no under insurance.

• Though the owner has claimed Rs. 10,00,000/-, the actual

depreciated value is only Rs. 6,50,545/-. Therefore the sum payable
is Rs. 6,50,545/- (minus the policy excess).

• (Note : If policy is made only for the super structure only, value of the
superstructure (assuming 15% for foundation) = 0.85 x 6,50,545 =
Rs. 5,52,963/-. Sum payable is Rs. 5,52,963/- (less policy excess)).

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