Question

The property of Lance's Garage is worth $90,000. Lance has a fire insurance policy of $40,000 that contains an 80% coinsurance clause. On a fire that causes $60,000 in damage, the insurance company pays A. $33,333.33. B. $33,334. 00 C. $27,777.78 D. $27,777.87

Answer 1

Answer:

A. $33,333.33

Step-by-step explanation:

This is the amount which the owner should have had at the time of loss:

80% of $90,000 = $72,000

But instead of $72,000, the owner had only $40,000.

$\frac{40,000}{72,000} = \frac{5}{9}$

It means that the owner had maintained $\frac{5}{9}$ of the totoal amount of insurance he should have had.

Therefore, the company will pay $\frac{5}{9}$ of the amount of loss.

$\frac{5}{9} × 60000$

$=33,333.33$

The correct answer option is A. $33,333.33.