Assume that the physical property of a business is valued at R5 000 000.The company's commercial property policy contains a coinsurance clause with a stated percentage of 80 per cent.The company insures the property for R3 000 000 (75 per cent of the specified minimum).The company incurs a fire loss of R2 000 000.How much of the loss will the insurance company pay for?

Question

Quizplus · Accepted Answer

The insurance company will pay R1,500,000. The coinsurance clause requires the company to insure at least 80% of the property's value, which is R4,000,000. Since they only insured for R3,000,000, they are underinsured. The payout is calculated as (Amount Insured / Amount Required) x Loss = (3,000,000 / 4,000,000) x 2,000,000 = 1,500,000.

Assume That the Physical Property of a Business Is Valued