Question

The fire insurance policy on a $240,000.00 office building contains an 80% coinsurance clause. If the office is covered by a $200,000.00 policy, how much settlement would be paid after a $17,000.00 fire?

Select one:
a. $17,000.00
b. $13,600.00
c. $16,320.00
d. $16,000.00

Answer 1

$17,000.00

Explanation:

The value of the property is $240,000.00 with an 80% Coinsurance Clause, which means that the property should be inssured for $240,000*0.8=$192,000.00.

The office building is insured for $200,000 wich is greater than the amount of money it should have been inssured for. If a loss of $17,000.00 occurs, then all $17,000.00 will be paid.

Answer 2

a. $17,000.

Explanation:

The value of the property= $240,000

the coinsurance clause percentage= 80%

This means that the company should be insured for 80% of 240,000

that is 0.8*240000= 192,000

While office is actually covered by $200,000 policy which is greater than the required insurance amount.

Therefore the settlement amount after a Loss of $17,000 will be same as $17,000.

hence option a will be correct.