Question

A commercial building with a market value of $200,000 has an insurance policy with an 80 percent coinsurance clause. The owner carried $120,000 of insurance and sustained a covered loss of $60,000. What amount of the loss would be covered by the insurance company

Answer 1

Answer:

$45,000

Explanation:

In this case the market value is $200,000 but the policy limit is only $120,000, with a coinsurance of 80%.

Since the amount of loss = $60,000, the insurance company will pay:

(stop limit / value) x loss = ($120,000 / $160,000*) x $60,000 = 0.75 x $60,000 = $45,000

*the $160,000 value is determined by multiplying the fair market value of the property times the coinsurance = $200,000 x 80% = $160,000