Question

You own a building worth $1,000,000 which also has $500,000 of machinery and equipment, and $500,000 of ingredients, finished goods and packaging materials in it on a regular basis. You are purchasing a Property Insurance policy that, for premium purposes, has an 80% Coinsurance Clause. Determine how much insurance you need to purchase to comply with the Coinsurance Clause. Provide your calculation for this portion of the answer. Describe the impact to an insurance claim if 1.) You purchased the required amount of insurance; 2.) You purchased $1,200,000 of coverage. Explain and show your calculations for 1 & 2 above as to how much the insurance company will pay you for each of the Losses listed: $500,000 $1,000,000 $2,000,000

Answer 1

Building	1000000
Machinery & Equipment	500000
Ingredients, Finished goods	500000
Total	2000000
80% co-insurance clause	1600000
So need insurance of	1600000
Company will pay	if Insurance	if Insurance
	1600000	1200000
Loss
500000	400000	275000
1000000	800000	550000
2000000	1280000	880000