Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. Under a co-insurance clause, the insured becomes a partial insurer if he fails to maintain the required amount of insurance on the insured property.

Question

Quizplus · Accepted Answer

A co-insurance clause in property insurance policies requires the policyholder to carry a minimum amount of insurance, typically 80% of the property's value. If the policyholder fails to meet this requirement, they become a co-insurer of the property, sharing in the losses up to the extent of the underinsurance. In this scenario, because Henderson insured the building for only $10,000 instead of the minimum $16,000 (80% of $20,000), he would be considered a co-insurer for the portion of the loss due to underinsurance.

Henderson Owned a Concrete Block Building Valued at $20,000