Rocko is the Risk Manager of Wacky Warehouse Inc., and he is…
Rocko is the Risk Manager of Wacky Warehouse Inc., and he is deciding if he should purchase insurance for the company’s $1 million warehouse. He is stuck between two risk management options: 1) Retain the exposure of loss at the warehouse: which has an Expected Value (Loss) = $10,000 2) Purchase Full Insurance: which has a premium = $15,000 Full Insurance has a Policy Limit = $1,000,000 (the value of the building); and it has no deductible Rocko utilizes non-financial decision making criteria when making his choice. After weighing the Total Cost of each risk management option, he decides to purchase the Full Insurance for $15,000. Based on the above information, which of the following must be true?