Question

Michelle owns a home valued at $100,000. Her insurance policy has an 80 percent coinsurance clause. She has the property insured for $70,000. If her house incurs fire damage worth $20,000, how much will she be able to collect from the insurance company?

Answer 1

$16,000

Step-by-step explanation:

Kindly check the picture attached for the calculation

Answer 2

$17,500

Step-by-step explanation:

Given that

Home is valued at 100,000

Property insured for 70000

Coinsurance clause of 80%

Firstly, amount of coverage should be determined.

Thus,

Amount of coverage = 100000 × 80%

= 100,000 × 0.8

= 80000.

Next,

Divide what is insured by what should have been and then multiply it by the amount of damage.

Thus,

(70000/80000) × 20000

0.875 × 20000

= $17500

Thus, the amount to be paid by the insurance company is $17,500