Under Karen's standard fire policy, what maximum amount will she receive after losing £12,000 of £20,000 worth of stock?

In this scenario, the standard fire policy likely includes a provision for the application of average, which is a principle used in insurance. When an insured party carries insurance for less than the full value of the property at risk, the insurer may apply the average condition at the time of a claim.

Here, Karen has a total stock value of £20,000 but only has coverage for £12,000. This means she is underinsured, as she is only insured for 60% of the total stock value. When she suffers a loss of £12,000, the insurer calculates the payout based on the proportion of coverage to total value.

To find the claim amount, the payout is calculated as follows:

1. Determine the ratio of the insurance coverage to the total value: Coverage amount / Total value = £12,000 / £20,000 = 0.6 (or 60%).

2. Apply this ratio to the loss amount to find the settlement: Settlement = Loss amount x Ratio = £12,000 x 0.6 = £7,200.

However, since the maximum amount Karen can claim after her loss is limited to the amount of stock she insured, the payout is ultimately capped at £