Question

"Ross and Amanda Troutman own a $200,000 home that's insured with a $120,000 policy that includes an 80% coinsurance requirement. What amount will they receive from the insurance company if they sustain a loss of $175,000?

Answer 1

$120,000

Step-by-step explanation:

The coinsurance requirement means that the insurance is responsible for X% (80% in this case) of the value of the property.

In this case, the value of the property is $200,000, so 80% would be $160,000. That would have been the maximum amount covered by the policy, but since the Troutman's policy only covered a smaller value, then it should cover:

$120,000 / $160,000 = 0.75 or 75%, then you multiply that amount by the total damage = 75% x $175,000 = $131,250

Since $131,250 is still higher than their policy, he Troutmans will only receive $120,000 which is the maximum amount covered by the policy.