Posted: August 2nd, 2015

Suppose that you own a home in Florida that can be sold for $1.75 million. (You would sell both the house and the land.)

Suppose that you own a home in Florida that can be sold for $1.75 million. (You would sell both the house and the land.) Alternatively, the home could be destroyed and a Wal Mart could be built on its land at a cost of $2 million. Since it would face very little competition in the market, a Wal Mart would be worth $2.75 million to whomever owned it.
What is the value of the land? Explain your reasoning in one or two sentences.
What is the conversion threshold of the property. Explain your reasoning in one or two sentences.

What is your insurable interest on the property?

Suppose that the chairman of Wal Mart tried to take out insurance on your home for $300,000. Why should the insurer reject the request? (Hint: assume that your home is easy to destroy while leaving no evidence, and that this hypothetical chairman of Wal Mart has no moral qualms about destroying the property of others.)

Why does the law of insurable interests discriminate against the chairman of Wal Mart, while allowing you or your financial dependent to access such insurance?