Brenda experienced a fire that caused $60,000 of damage on a home that is appraised at $120,000. She has an $80,000 face value homeowner's policy. Her policy has a $500 deductible and has an 80% coinsurance requirement. How much will her insurer reimburse her for the repair?

Question

Quizplus · Accepted Answer

The correct answer is A because the amount of insurance required is $96,000 (80% of $120,000). Since Brenda has only $80,000 of insurance, she is underinsured. Therefore, her insurer will only reimburse her for the proportion of the loss that her insurance bears to the amount of insurance required. This proportion is $80,000/$96,000 = 5/6. Therefore, her insurer will reimburse her for 5/6 of the $60,000 loss, which is $50,000. After deducting the $500 deductible, Brenda will receive $49,500 from her insurer.

Brenda Experienced a Fire That Caused $60,000 of Damage on a Home