In: Operations Management
Best Insurance Company provides Eve Erickson with property insurance that contains an 80% coinsurance clause. The coinsurance clause states that if Eve insures the property up to 80% of its value, she will recover any loss up to the face amount of the policy. Eve purchases an $80,000 property insurance policy for property valued at $200,000. Due to a fire, Eve suffers a loss of $10,000.
What dollar amount will Eve recover from the insurance company? Explain and show your calculation of Eve's insurance recovery.
The amount of coverage there should have been = 200000 * 80 % = 160000 (Considering 80% insured clause)
Amount of coverage present = $80000
Ratio of AMount of coverage present / Amount of coverage required = 80000 / 160000 = 0.5
Amout of loss that Eve can recover = 0.5 * $10000 = $5000