A home with a market value of $320,000 is insured for $288,000 in a policy that contains an 80% coinsurance
clause. Find the part of a loss due to fire that the insurance company will pay
Assuming a total loss, what is 80% of 288,000
I don't know I am a grade 4
$3000,ooo
To find the part of the loss that the insurance company will pay, we first need to calculate the minimum insurance amount required by the coinsurance clause.
The coinsurance clause states that the homeowner must insure the property for at least 80% of its market value.
So, 80% of the market value of the home is (80/100) * $320,000 = $256,000.
Since the policy is insured for $288,000, which is greater than the minimum required, we can say that the policy fully complies with the coinsurance clause.
Now, let's assume there is a fire that causes a loss claim of $100,000.
To calculate the amount the insurance company will pay, we need to determine the insured-to-value ratio. This ratio is calculated by dividing the amount of insurance by the actual value of the property.
The insured-to-value ratio = Insured amount / Value of the property.
In this case, the insured amount is $288,000, and the value of the property is $320,000.
So, the insured-to-value ratio = $288,000 / $320,000 = 0.9.
Now, let's calculate the amount that the insurance company will pay for the $100,000 loss using the insured-to-value ratio:
Insurance company payment = Insured amount * Loss amount / Value of the property
= $288,000 * $100,000 / $320,000
= $90,000.
Therefore, the insurance company will pay $90,000 of the $100,000 loss due to fire.