Question

A house worth $180,000 has a coinsurance clause of 75 percent. The owners insure the property for $101,250. They then have a loss that results in a $50,000 claim. They will receive $ ____.00 from insurance.

Answer 1

$37,500

Explanation:

We have been given that a house worth $180,000 has a coinsurance clause of 75 percent. The owners insure the property for $101,250. They then have a loss that results in a $50,000 claim.

We will use loss settlement formula to solve our given problem.

`\text{Loss settlement}=\frac{\text{Loss}*\text{Limit of insurance}}{\text{Actual cash value}* \text{Coinsurance}\%}`

Upon substituting our given values, we will get:

`\text{Loss settlement}=(\$50,000*\$101,250)/(\$180,000* 75\%)`

`\text{Loss settlement}=(\$50,000*\$101,250)/(\$180,000* 0.75)`

`\text{Loss settlement}=(\$5,062,500,000)/(\$135,000)`

`\text{Loss settlement}=\$37,500`

Therefore, they will receive $37,500 from insurance.