Question

An insured owns a building that is valued at $400,000. To comply with the 80% coinsurance provision of his insurance policy, how much should he insure the property for?

1) 100% of the market value
2) $400,000
3) $32,000
4) 80% of the property's replacement cost or more

Answer 1

The insured should insure the property for $500,000 to comply with the 80% coinsurance provision of his insurance policy.

Step-by-step explanation:

To comply with the 80% coinsurance provision of his insurance policy, the insured should insure the property for $500,000. The insured should insure the property for 100% of the market value since the coinsurance provision requires the insured to carry insurance equal to a specified percentage of the property's value. In this case, the insured should carry insurance equal to 80% of the property's value, which is $500,000.