Property Insurance FundamentalsQuestion 218 of 474
A building valued at $400,000 is insured for $280,000 with an 80% coinsurance clause and a $2,500 deductible. A covered loss of $50,000 occurs. The insurer pays:
a.$47,500
b.$43,750
c.$41,250
d.$35,000
Explanation
Eighty percent of $400,000 is $320,000 required; the $280,000 carried gives 0.875, and 0.875 of $50,000 is $43,750, from which the $2,500 deductible leaves $41,250. Stopping at $43,750 forgets the deductible, which comes off after the ratio is applied. Paying $47,500 takes the deductible but ignores the penalty, and $35,000 divides by the $400,000 value rather than the $320,000 required.
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