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:

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:

• A. $80,000.
• B. $66,667.
• C. $96,000.
• D. $100,000.

Answer: (B)

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.