Question

Assume you have a property insurance contract which includes an 80% coinsurance provision. The insured building is worth $5,000,000 and you bought $3,000,000 worth of coverage. If you suffered an insured loss of $2,000,000, how much would you expect from the insurer?

Answer 1

Answer:

$1,500,000

Explanation:

in order for the insurance company to pay for all the damages, you should have purchased a policy that covered $4,000,000 in damages. Since the policy only covers $3,000,000, the insurance company will pay:

($3,000,000 / $4,000,000) x $2,000,000 (loss) = 0.75 x $2,000,000 = $1,500,000