Naomi owned an inventory of widgets worth $100 000.She purchased $40 000 worth of property insurance from Huron Insurance Co.That policy contained a co-insurance clause that required at least 80 percent coverage.A flood caused extensive damage to Naomi's widgets.Naomi will be entitled to receive a benefit of $20 000 if the flood caused damage worth

Question

Quizplus · Accepted Answer

Since the policy contains an 80% co-insurance clause, Naomi must have insured the inventory for at least $80,000 (80% of the total value of $100,000) to avoid a penalty for underinsurance.

She purchased $40,000 in coverage, which is only half of the required amount. Therefore, she is only entitled to receive 50% of any damages ($40,000 / $80,000).

If the flood caused $20,000 worth of damage, Naomi's benefit would be $10,000 ($20,000 * 50%).

If the flood caused $30,000 worth of damage, Naomi's benefit would be $15,000 ($30,000 * 50%).

If the flood caused $60,000 worth of damage, Naomi's benefit would be $30,000 ($60,000 * 50%).

The only option where her benefit would equal $20,000 (the amount stated in the question) is if the flood caused $40,000 worth of damage, making her benefit $20,000 ($40,000 * 50%). Therefore, the answer is C) $40,000.

Naomi Owned an Inventory of Widgets Worth $100 000