In: Finance
Tom has a homeowner’s policy with a 80% coinsurance clause. The full insurable value of his property is $1,000,000. He is only carrying $400,000 in coverage. A fire in the kitchen breaks out (which is a covered peril) and Tom incurs $200,000 in damages. How much will Tom recover from his insurance policy, ignoring any deductibles?
$200,000 |
|
$160,000 |
|
$100,000 |
|
$40,000 |
Answer : Correct Option is $100,000
As per coinsurance provision
Given :
Insurable Value of Property = $1,000,000;
Coverage = $4,00,000
Coinsurance = 80%
Amount of damages = $200,000
Amount Insured Should Have = 1,000,000 * 80%
= 800000
But Coverage is $400,000
Therefore Amount that the Tom will recoever from insurance company = (400,000 / 800,000) * 200,000
= 0.50 * 200000
=$ 100,000