The property was insured for $100,000, and valued at $150,000, with an 80% coinsurance. The loss was $80,000. The amount the client would receive is:

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Study for the Other Than Life (OTL) Agent's Exam A. Enhance your knowledge with questions and detailed explanations. Prepare confidently for your insurance exam!

Multiple Choice

The property was insured for $100,000, and valued at $150,000, with an 80% coinsurance. The loss was $80,000. The amount the client would receive is:

Explanation:
Coinsurance means you must carry at least a certain percentage of the property's value to receive full payment for a loss. Here, the value is 150,000 and the requirement is 80%, so the minimum amount to insure for full coverage is 150,000 × 0.80 = 120,000. The policy only covers 100,000, which is 100,000 / 120,000 = 5/6 of the required amount. In a coinsurance scenario, the payout for a loss is the same fraction of the loss as the insured amount is of the required amount. So the payout is (5/6) × 80,000 = 66,666.67, rounded to 66,667. The client would receive 66,667.

Coinsurance means you must carry at least a certain percentage of the property's value to receive full payment for a loss. Here, the value is 150,000 and the requirement is 80%, so the minimum amount to insure for full coverage is 150,000 × 0.80 = 120,000. The policy only covers 100,000, which is 100,000 / 120,000 = 5/6 of the required amount. In a coinsurance scenario, the payout for a loss is the same fraction of the loss as the insured amount is of the required amount. So the payout is (5/6) × 80,000 = 66,666.67, rounded to 66,667. The client would receive 66,667.

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