A building with a $750,000 replacement cost carries $675,000 of insurance, an 80 percent coinsurance clause and a $2,500 deductible. A covered loss of $95,000 occurs. The insurer pays:
Explanation
The clause required 80 percent of $750,000, or $600,000, and the insured carried $675,000, so the coinsurance test is met and there is no penalty: $95,000 - $2,500 = $92,500. Comparing the $675,000 limit with the building's full $750,000 value produces $85,500 and is wrong, because the ratio is built on the amount required, not on total value. Paying $95,000 satisfies coinsurance but forgets the deductible.
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