Question

A farm building has a replacement cost of $100,000 and an 80 percent coinsurance requirement. The amount of insurance carried was $40,000, and there was a loss of $10,000. How much will the insured receive as a settlement, not including the deductible?

Answer 1

The insured will receive $5,000 as a settlement, not including the deductible.

Step-by-step explanation:

To calculate the settlement amount, we first need to determine if the amount of insurance carried meets the 80% coinsurance requirement. The coinsurance requirement is 80% of the replacement cost, which is $80,000. Since the amount of insurance carried is only $40,000, it does not meet the requirement.

Settlement Amount = Loss Amount x (Amount of Insurance Carried / Coinsurance Requirement)

Substituting in the given values, we get:

Settlement Amount = $10,000 x ($40,000 / $80,000) = $5,000

Therefore, the insured will receive $5,000 as a settlement, not including the deductible.