Solve the problem.
-Mark Stephens owns rental units with a replacement cost of $290,000 which are insured for $188,500 with an 80% coinsurance clause. There is a fire loss of $20,500. How much will the insurance company pay?

Question

Quizplus · Accepted Answer

To determine how much the insurance company will pay, we need to calculate the amount of insurance coverage that should have been in force at the time of the loss:
0.8 * replacement cost = 0.8 * $290,000 = $232,000
Since the insurance policy only covered $188,500, Mark Stephens did not meet the coinsurance requirement, and is considered as being partially self-insured for the loss. 
The amount payable by the insurance company is: 
(insurance carried / insurance required) * loss = ($188,500 / $232,000) * $20,500 = $16,656.05, which rounded to the nearest cent is $16,656. Therefore, the correct answer is D.

Solve the Problem. -Mark Stephens Owns Rental Units with a Replacement Cost of Replacement