Solve the problem.
-Pelican Lumber Company owns a building with a replacement cost of $738,000 which is insured for $531,360 with an 80% coinsurance clause. The building has a fire loss of $20,500. How much will the insurance company pay?

Question

Quizplus · Accepted Answer

The insurance company will pay $18,450. This is calculated by first determining if the insurance coverage meets the coinsurance requirement (80% of $738,000 = $590,400). Since the policy is for $531,360, it does not meet the 80% requirement. The payout is then the lesser of the actual cash value of the loss or the amount of insurance carried over the amount required by coinsurance times the loss, which is ($531,360 / $590,400) * $20,500 = $18,450.

Solve the Problem. -Pelican Lumber Company Owns a Building with a Replacement Cost