How much can a homeowner collect if a $100,000 house has $40,000 of damage but is only insured for $60,000 under an 80% coinsurance requirement?

How much can a homeowner collect if a $100,000 house has $40,000 of damage but is only insured for $60,000 under an 80% coinsurance requirement?

• A. $20,000
• B. $30,000
• C. $40,000
• D. $60,000

Answer: (B)

To determine how much a homeowner can collect under an 80% coinsurance requirement, it's essential to understand how coinsurance works in property insurance. The coinsurance clause encourages policyholders to insure their property for a specific percentage of its total value—in this case, 80% of the replacement cost of the house. First, calculate the minimum amount of insurance the homeowner needed to carry based on the 80% coinsurance requirement. For a property valued at $100,000, the minimum amount of insurance would be: \[ 0.80 \times 100,000 = 80,000 \] Since the homeowner is only insured for $60,000, they do not meet the coinsurance requirement. In such cases, the payout for the claim will be adjusted. The loss amount is $40,000, but because of the inadequate insurance, the claim payment will be calculated with a formula that considers both the amount insured and the coinsurance requirement. The formula to determine the payout in this case is: \[ \text{Payout} = \left( \frac{\text{Amount Insured}}{\text{Coinsurance Requirement}} \right) \times \text{Loss Amount} \] Substituting in

To determine how much a homeowner can collect under an 80% coinsurance requirement, it's essential to understand how coinsurance works in property insurance. The coinsurance clause encourages policyholders to insure their property for a specific percentage of its total value—in this case, 80% of the replacement cost of the house.

First, calculate the minimum amount of insurance the homeowner needed to carry based on the 80% coinsurance requirement. For a property valued at $100,000, the minimum amount of insurance would be:

[

0.80 \times 100,000 = 80,000

]

Since the homeowner is only insured for $60,000, they do not meet the coinsurance requirement. In such cases, the payout for the claim will be adjusted.

The loss amount is $40,000, but because of the inadequate insurance, the claim payment will be calculated with a formula that considers both the amount insured and the coinsurance requirement. The formula to determine the payout in this case is:

[

\text{Payout} = \left( \frac{\text{Amount Insured}}{\text{Coinsurance Requirement}} \right) \times \text{Loss Amount}

]

Substituting in