Suppose in January you bought a $160,000 policy for a building with an actual cash value of $200,000, and the policy has an 80 percent coinsurance clause, which requires at least 80 percent of the value to be covered in order to receive the actual loss.By the time the building suffers a $20,000 loss in November, its actual cash value has increased to $240,000.What amount will the insurer pay?
A)$ 24,000
B)$ 20,000
C)$ 16,000
D)$ 22,222.22
E)$ 16,666.67

Question

Quizplus · Accepted Answer

The insurer will pay based on the coinsurance formula: (Amount of Insurance / (Coinsurance percentage * Actual Cash Value at the time of loss)) * Amount of loss. Here, it's ($160,000 / (0.80 * $240,000)) * $20,000 = 0.8333 * $20,000 = $16,666.67.

Suppose in January You Bought a $160,000 Policy for a Building