What is the principal purpose of a coinsurance clause in a property policy?
a.To allow the insurer to cancel the policy if a loss exceeds 50% of the limit
b.To encourage the insured to insure the property to a stated percentage of its full value, and to penalize under-insurance at the time of loss
c.To require the insured to share every loss equally with the insurer regardless of policy limits
d.To eliminate the deductible whenever a partial loss occurs
Explanation
A coinsurance clause encourages insureds to carry a limit close to the true value of the property, typically 80%, 90%, or 100%. If at the time of loss the insured carries less than the required percentage, recovery is reduced proportionally by the (Did/Should) ratio. It is not a 50/50 sharing of every loss and it does not waive the deductible.
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Related questions on this topic
- California Insurance Code section 2051 generally defines the measure of indemnity for a partial loss to property as which of the following?
- A 12-year-old roof with a normal life of 20 years is destroyed by a covered windstorm. Under a replacement-cost (RC) loss settlement, how is the loss generally paid?
- A building has a replacement cost of $500,000. The policy carries an 80% coinsurance clause, the insured carries only $300,000 of coverage, and a covered loss of $100,000 occurs with a $1,000 deductible. Using the standard coinsurance formula (Did/Should) x Loss - Deductible, how much will the insurer pay?
- Which statement best describes the protection given to a lender under a standard (union) mortgage clause in a property policy?
- How does an OPEN (simple) mortgage clause differ from a STANDARD (union) mortgage clause?
- A property insurer files a broader version of its homeowners form with the California Department of Insurance that takes effect during the term of an existing policy. Which provision typically extends the broader coverage to that existing policy at no extra premium?
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