Question

A $200,000 property sustains $120,000 in fire damage, but is only covered for $80,000. Under the terms of the insurance policy's 80% coinsurance requirement how much will the insured receive?

Answer 1

$64,000

Step-by-step explanation:

If the policy only covered $80,000 and it also had a coinsurance of 80%, then the insured ill receive: $80,000 x 80% = $64,000

The purpose of coinsurance is to lower the premiums by sharing the risks between the insured and the insurance company. In this case, the insured shares 20% of any risks that the property might suffer and the insurance company covers the remaining 80%. The higher the percentage of the coinsurance, the lower the premium, but the risk for the insured increases.