Question

A buyer purchased a home for $100,000. the land is worth 15% and they insured at 65% of the replacement value. The buyer then suffers damages estimated at $50,000 with an 80% co insurance clause recovery will be ____

Answer 1

The buyer's recovery will be $26,000.

Step-by-step explanation:

Coinsurance is when an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost. In this scenario, the buyer insured the home at 65% of the replacement value. Since the damages suffered were estimated at $50,000, the buyer's insurance would cover 65% of that amount, which is $32,500. However, there is an 80% coinsurance clause in place. This means that the buyer will only be reimbursed 80% of the covered amount, resulting in a recovery of $26,000.