ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause.The building had a replacement cost of $1 million when it sustained a $40,000 loss.How much will ABC Company receive from its insurer,assuming no deductible applies?
A)$33,333
B)$35,000
C)$36,000
D)$40,000

Question

Quizplus · Accepted Answer

The insurance payout is calculated using the formula: (Insurance Carried / Insurance Required) x Loss Amount. The insurance required is 80% of the replacement cost, which is $800,000. ABC Company carried $700,000 in insurance. Therefore, the payout is ($700,000 / $800,000) x $40,000 = $35,000.

ABC Company Insured Its Building on a Replacement Cost Basis