Solve the problem.
-The Corner Cafe has a replacement cost of $232,000 and is insured for $174,000 with an 80% coinsurance clause. The building has a fire loss of $24,500. How much will the insurance company
Pay?

Question

Quizplus · Accepted Answer

To calculate how much the insurance company will pay, we first need to determine if the building was adequately insured according to the coinsurance clause. The coinsurance clause requires the building to be insured for at least 80% of its replacement cost. In this case, 80% of $232,000 is $185,600. Since the building was insured for $174,000, which is less than $185,600, it was underinsured. To determine the amount of the loss that will be covered by the insurance company, we use the following formula:

Amount of loss x (Amount of insurance carried / Required amount of insurance) = Amount of loss paid by insurance

In this case, the amount of loss is $24,500, the amount of insurance carried is $174,000, and the required amount of insurance is $185,600. Plugging these values into the formula, we get:

$24,500 x ($174,000 / $185,600) = $22,969 (rounded to the nearest dollar)

Therefore, the insurance company will pay $22,969 towards the fire loss. Answer D is the correct choice. The insured amount is 80% of the replacement cost, which is $185,600 ($232,000 x 0.8). The insurance company will pay the lesser of the actual loss or the policy limit, which is $174,000. Since the fire loss of $24,500 is less than the policy limit, the insurance company will pay the full amount of the loss, which is $24,500. Therefore, the answer is D.

Solve the Problem. -The Corner Cafe Has a Replacement Cost of $232,000 and of $232,000