Question

Jake’s Garage owns a building with the replacement cost value of $400,000 at the time of a covered loss. If Jake’s Garage has the $300,000 limit of insurance on its building with 80% Coinsurance, RC, and $1,000 deductible, what is the amount Jake’s Garage paid by its insurer.

Answer 1

Loss Payment:
Step 1: Calculate recovery
Insurance Carried/Insurance required= Recovery
Step 2: Calculate Loss Payment
Loss value * Recovery (as calculated in Step 1) - Deductible
Note: At the time of total loss, the insurer is liable to pay complete amount of insurance
In the question, assuming that this is the case of total loss (as value of loss is not mentioned)- The amount to be received from insurer is given below:
Limit of insurance - Deductible = $300,000 - $1,000 = $299,000
Now let's assume that the amount of loss was $ 50,000 on a $400,000 property
Insurance carried (a)	$        300,000
Insurance required (80% of $400,000 as the property is 80% co-insured) (b)	$        320,000
Recovery = (a)/(b)	0.9375
Loss Value	$          50,000
Loss Payment by the insurer (Loss value * Recovery (as calculated above) - Deductible)
(50,000*0.9375)-1,000 = 45,875	$          45,875