The value of a home is $50,000, and the homeowner policy covering it contains an 80% coinsurance clause. Assume the home is insured for $30,000 and a $12,000 loss occurs. How much will the insured recover? (Ignore the ACV calculation and assume there is no fraud or other unusual circumstances surrounding the loss.)

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To determine the amount of recovery, we need to calculate the amount of insurance required at the time of the loss, which is 80% of the actual cash value ($50,000) or ($50,000 x 80%) = $40,000. Since the insured carried insurance of only $30,000, which is less than the required amount of $40,000, a coinsurance penalty will apply. The penalty is calculated by dividing the amount of insurance carried ($30,000) by the amount of insurance required ($40,000) and multiplying the loss by the result. So, the insured will recover ($12,000 x [$30,000 / $40,000]) = $9,000, which is less than the full amount of loss.

The Value of a Home Is $50,000, and the Homeowner