A brief explanation of this table may be necessary. Taking the first line of the table, if the owner of a fireproof building worth $1,000,000 insures 15 per cent of its value, the amount of insurance will equal $150,000. The rate we assumed, and as found according to the schedule, is 100 cents per $100 of insurance, or 1 per cent, and the total premium paid by the owner is $1,500. Suppose, now, that the property owner agrees to insure 20 per cent of the value of his building. According to the table, the Universal Mercantile Schedule will permit the extra $50,000 to be taken out at a rate equal to only 45 per cent of the rate on the preceding $150,000 of insurance. The problem now is to compute the rate on $200,000 of insurance. This may be done in the following way: The $150,000 of insurance we saw required a premium of $1,500. Now the extra $50,000, or the sum over and above 15 per cent, was granted at a rate equal to only 45 per cent of the preceding rate, i.e., 45 per cent of 100 cents, or 45 cents. A rate of 45 cents per $100 of insurance for the extra $50,000 of insurance will give a total premium of $225. The total amount of the premium, therefore, for $200,000 of insurance equals $1,500 plus $225, or $1,725. The rate for the $200,000 policy, therefore, equals $1,725 divided by $200,000, or 86.3 cents.

Suppose, now, that the property is insured for 30 per cent of its value, or $300,000. According to the Universal Mercantile Schedule the extra $100,000 of insurance is granted at a rate equal to only 40 per cent of the rate, or 86.3 cents, on the preceding $200,000. The total premium on $300,000 of insurance would, therefore, amount to the premium on the $200,000 of insurance ($1,725), plus 40 per cent of the preceding rate (that is to say, 40 per cent of 86.3 cents), or 34.5 cents for the extra $100,000, or $345, thus giving a total of $2,070. The rate for $300,000 of insurance is found by dividing $2,070 by $300,000, which gives 69 cents. The same method of computation may be used for calculating the rate for additional insurance to any amount, until finally the entire building is insured, which, if done, will require a rate equal to only 28 per cent of the rate required by the schedule if the building is insured to only 15 per cent of its value.

Now it is advisable that a further table be devised which will enable the rater to know at once (being given the percentage of the value insured, and the rate as determined by the schedule) what the rate on the given policy shall be. This table is arranged as follows in the Universal Mercantile Schedule: "For insurance not exceeding 15 per cent of the value of building, charge full rate obtained by the Schedule at No. 324. For any percentage of value in excess of 15 per cent take the following percentage of the rate, viz.: for 20 per cent of value, 86 per cent of the rate; for 30 per cent, 69 per cent of the rate; for 40 per cent, 58 per cent of the rate; for 60 per cent, 44 per cent; for 70 per cent, 39 per cent; for 75 per cent, 36 per cent; for 80 per cent, 34 per cent; for 90 per cent, 31 per cent; for 100 per cent, 28 per cent. The following table will show the proper rate for any percentage of coinsurance: 1

1The following table is found in the rating slip for rating fireproof buildings according to the Universal Mercantile Schedule,

COINSURANCE ON FIREPROOF BUILDINGS

Rate No. 324 of Universal Schedule

Percentage of Insurance to Value.

20% 30% 40% 50% 60% 70% 75% 80% 90% 100%

Cents Cents Cents Cents Cents Cents Cents Cents Cents Cents 12.95 10.35 8.67 7.45 6.52 5.77 5.46 5.16 4.63 4.20 13.81 11.04 9.24 7.95 6.96 6.16 5.82 5.50 4.94 4.48 14.67 11.73 9.82 8.44 7.39 6.54 6.18 5.84 5.25 4.76 15.53 12.42 10.40 8.94 7.83 6.93 6.55 6.19 5.56 5.04 16.39 13.11 10.98 9.44 8.26 7.31 6.91 6.53 5.87 5.32 17.26 13.80 11.56 9.94 8.70 7.70 7.28 6.88 6.18 5.60 18.12 14.49 12.13 10.43 9.13 8.08 7.64 7.22 6.48 5.88 18.98 15.18 12.71 10.93 9.57 8.47 8.00 7.56 6.79 6.16 19.84 15.87 13.29 11.43 10.00 8.85 8.37 7.91 7.10 6.44 20.71 16.56 13.87 11.92 10.44 9.24 8.73 8.25 7.41 6.72 21.57 17.25 14.45 12.42 10.87 9.62 9.10 8.60 7.72 7.00 22.43 17.94 15.02 12.92 11.31 10.01 9.46 8.94 8.03 7.28 23.30 18.63 15.60 13.41 11.74 10.39 9.82 9.28 8.34 7.56 24.16 19.32 16.18 13.91 12.18 10.78 10.19 9.63 8.65 7.84 25.02 20.01 16.76 14.41 12.61 11.16 10.55 9.97 8.96 8.12 25.89 20.70 17.34 14.91 13.05 11.55 10.92 10.32 9.27 8.40 30.20 24.15 20.23 17.39 15.22 13.47 12.74 12.04, 10.81 9.80 34.52 27.60 23.12 19.88 17.40 15.40 14.56 13.76 12.36 11.20 38.83 31.05 26.01 22.36 19.57 17.32 16.38 15.48 13.90 12.60 43.15 34.50 28.90 24.85 21.75 19.25 18.20 17.20 15.45 14.00 47.46 37.95 31.79 27.33 23.92 21.17 20.02 18.92 16.99 15.40 51.78 41.40 34.68 29.82 26.10 23.10 21.84 20.64 18.54 16.80 56.09 44.85 37.57 32.30 28.27 25.02 23.66 22.36 20.08 18.20 60.41 48.30 40.46 34.79 30.45 26.95 25.48 24.08 21.63 19.60 64.71 51.75 43.35 37.26 32.61 28.86 27.30 25.80 23.17 21.00 69.04 55.20 46.24 39.76 34.80 30.80 29.12 27.52 24.72 22.40 73.35 58.65 49.13 42.24 36.97 32.72 30.94 29.24 26.26 23.80 77.67 62.10 52.02 44.73 39.15 34.65 32.76 30.96 27.81 25.20 81.98 65.55 54.91 47.21 41.32 36.57 34.58 32.68 29.35 26.60 86.30 69.00 57.80 49.70 43.50 38.50 36.40 34.40 30.90 28.00

N. B.--For any intermediate rate, combine two of above; for example, the rate of 31 cents would be that for 15 cents and 16 added; the rate for 32 would be double that for 16.

If the rate, as found by the schedule, is 15 cents per hundred dollars of insurance, this means that the flat rate of 15 cents is to be charged if only 15 per cent of the value is insured. But let us assume that 20 per cent of the value of the building

is insured. In that case we saw from the preceding table that the rate is to be 86.3 per cent of the flat rate instead of the full rate, or 100 per cent. But 86.3 per cent of 15 cents is 12.95 cents, and that is the figure which will be found in the column under the 20-per-cent heading and opposite the 15-per-cent rate. Suppose that with the flat rate being 15 cents the policy-holder agrees to insure the building to 30 per cent of its value. In the preceding table we noticed that if 30 per cent of the value of the building is insured the rate shall be only 69 per cent as large as if only 15 per cent of the building were insured. Sixty-nine per cent of 15 cents is 10.35 cents, which is the amount which will be found opposite the fifteen cents rate and in the 30-per-cent column. The same explanation might be given for any rate found by the schedule and for any amount of insurance that might be taken out. Thus, for example, if the rate found by the schedule is 28 cents, this rate is the rate which is to be charged if only 15 per cent of the value of the building is insured, that is to say, 100 per cent of the rate is charged if the insurance amounts to only 15 per cent of the value of the building. Suppose, however, that the owner of the building agrees to insure 50 per cent of the building. The preceding table shows that if 50 per cent of the value is insured, the rate should be only 49.7 per cent of the rate charged if only 15 per cent of the value is insured, that is to say, 49.7 per cent of 28 cents, or 13.91 cents. This is the amount which will be found in the 50-per-cent column opposite the 28-cent rate.

The Three-Quarters Loss and Value Clauses.—It should be noted that fire-insurance policies frequently contain a clause which limits the insurer's liability to a fixed proportion, such as two thirds or three fourths of the loss, or of the value of the property insured. In cities with good fire protection, it is the desire of the company to prevent the insured from taking out too little insurance. On the other hand, in communities where the fire-protection facilities are poor,

and where losses are apt to be total rather than partial, or in the case of properties which may at any time become unprotected, or which are dangerous risks, it is the desire of the company to assure itself of the owner's interest in safeguarding the property by preventing him from taking out too much insurance. Thus, if a building is valued at $10,000 at the time of the fire, and is insured under an $8,000 policy containing a "three-fourths loss clause," and the loss amounts to $8,000, then the company's liability is limited to three fourths of $8,000, or $6,000. If, however, this $8,000 policy contained a "three-fourths value clause," the company's liability would be three fourths of $10,000, or $7,500. The following two clauses are given as typical examples of the "three-fourths" clause:

THREE-FOURTHS VALUE CLAUSE

It is a condition of this insurance that, in the event of loss or damage by fire to the property insured under this policy, this company shall not be liable for an amount greater than three fourths of the actual cash value of each item of property insured by this policy (not exceeding the amount insured on each such item) at the time immediately preceding such loss or damage; and in the event of additional insurance-if any is permitted hereon-then this company shall be liable for its pro rata proportion only of three fourths such cash value of each item insured at the time of the fire, not exceeding the amount insured on each such item. Attached to and made a part of Policy No. Insurance Company.

THREE-FOURTHS LOSS CLAUSE

of

It is a condition of this insurance that, in the event of loss under this policy, this company shall not be liable for an amount greater than three fourths of such loss (not exceeding the sum hereby insured), and in the event of additional insurance permitted hereon, then this company shall not be liable for an amount greater than its pro rata proportion of three fourths of such loss; in both events the other one fourth to be borne by the assured. Attached to and made a part of Policy No.

Insurance Company.

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