Property Insurance FundamentalsQuestion 187 of 215
What is the principal purpose of a coinsurance clause in a property policy?
a.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
b.To require the insured to share every loss equally with the insurer regardless of policy limits
c.To eliminate the deductible whenever a partial loss occurs
d.To allow the insurer to cancel the policy if a loss exceeds 50% of the limit
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?
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