Property Insurance FundamentalsQuestion 219 of 474
A dwelling with a $320,000 replacement cost is insured for $300,000 under a 90% coinsurance clause with a $1,000 deductible. A covered $60,000 loss occurs. The insurer pays:
a.$60,000
b.$55,250
c.$56,250
d.$59,000
Explanation
Ninety percent of $320,000 is $288,000 required, and the $300,000 carried exceeds it, so no coinsurance penalty applies and the loss is paid in full less the $1,000 deductible: $59,000. The $60,000 figure forgets the deductible. The two lower figures apply a ratio of $300,000 to the $320,000 value, but the formula compares insurance carried with the amount required, not with full value.
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