Property Insurance FundamentalsQuestion 217 of 474
A dwelling with a $250,000 replacement cost carries $150,000 of insurance under an 80% coinsurance clause. A covered loss of $40,000 occurs and there is no deductible. The insurer pays:
a.$30,000
b.$24,000
c.$40,000
d.$32,000
Explanation
The required amount is 80% of $250,000, or $200,000; carrying $150,000 gives a ratio of 0.75, and 0.75 of the $40,000 loss is $30,000. Paying the full $40,000 ignores the coinsurance clause altogether. The $24,000 answer divides the insurance carried by the full $250,000 value instead of the $200,000 required, and $32,000 simply takes 80% of the loss.
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