Question

A house worth $250,000 has a coinsurance clause of 90 percent. The owners insure the property for $191,250. They then have a fire that causes $80,000 in damage. They will receive $______.00 from insurance.

Answer 1

The insurance will pay $68,000 for the fire damage under the coinsurance clause since the owners did not meet the minimum insurance requirement.

Step-by-step explanation:

To determine the amount the insurance will pay for the fire damage under the coinsurance clause, we need to use the following formula:

Insurance Payment = (Amount of Insurance Purchased / Minimum Required Insurance) × Loss

First, let's calculate the minimum required insurance based on the coinsurance clause:

Minimum Required Insurance = 90% of Home's Value = 0.9 × $250,000 = $225,000

Since the owners insured the property for $191,250, which is less than the minimum required insurance, the payout from the insurance company will be affected. Let's calculate the insurance payment:

Insurance Payment = ($191,250 / $225,000) × $80,000 = 0.85 × $80,000 = $68,000

Therefore, the insurance will pay $68,000 for the $80,000 in damage.

Answer 2

$68,000 will be received from insurance

Step-by-step explanation:

250,000*.9=225000

$191,250/225,000=.85

.85*80,000=$68,000

This is the correct answer