Question

If Carissa Dalton has a $310,000 home insured for $240,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a claim of $12,500 ? Assume there is no deductible. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Answer is complete but not entirely correct.

Answer 1

The insurance company would pay approximately $9,677.42 on a claim of $12,500.

Step-by-step explanation:

To calculate the amount the insurance company would pay on a claim, we need to determine whether the homeowner's insurance meets the coinsurance requirement. The coinsurance provision states that the homeowner must insure the property for at least 80% of its actual value. In this case, Carissa Dalton insured her $310,000 home for $240,000, which is less than the required 80%. Therefore, the insurance company will only cover a proportionate amount of the claim.

To calculate the insurance company's payment, we can first find the claim-to-value ratio by dividing the insured amount by the actual value: $240,000 / $310,000 = 0.774193548.

Next, we multiply the claim amount by the claim-to-value ratio to find the insurance payment: $12,500 * 0.774193548 = $9,677.42.

Therefore, the insurance company would pay approximately $9,677.42 on a claim of $12,500.

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