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Glenn has a building valued at $100,000. And carries insurance of $50,000 with a 90% coinsurance clause. How much will he collect in the event of a total loss?

a. $100,000
b. $50,000
c. $55,544
d. $90,000

1 Answer

6 votes

Final answer:

Glenn will collect approximately $55,555 in the event of a total loss due to insurance of $50,000 with a 90% coinsurance clause on a building valued at $100,000. The closest choice provided is $55,544 (choice c), assuming a minor error in the given options.

Step-by-step explanation:

The student's question concerns how much Glenn would collect in the event of a total loss if he has a building valued at $100,000, carries insurance of $50,000, and the policy includes a 90% coinsurance clause. To answer this, we need to use the formula for calculating insurance claims when a coinsurance clause is involved:

Claim Paid = (Amount of Insurance Carried / (Amount of Insurance Required x Value of Building)) x Loss, where Amount of Insurance Required = Coinsurance Percentage x Value of Building

In Glenn's case, the insurance required is 90% of $100,000, which equals $90,000. Since Glenn only carries $50,000 of insurance, the formula would be: (50,000 / (90,000 x 100,000)) x 100,000.

Substituting the values in the formula:
Claim Paid = (50,000 / 90,000) x 100,000 = 0.555... x 100,000. So, Glenn will get approximately $55,555 in the event of a total loss. However, this is not one of the options given; hence, the closest choice answering how much Glenn will collect is $55,544 (choice c), assuming there was a minor calculation or rounding error in the options provided.

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