Personal finance

Question

A house worth $250,000 has a coinsurance clause of 90 percent. The owners insure the property for $191,250. They then have a fire that causes $80,000 in damage. How much will they receive from insurance?

Answer 1

Hi Blaine:

With an $80,000 loss, the owners would only collect $61,200 because they were underinsured by $33,750 or 13.5%. With a 90% coinsurance clause, they should have been carrying $225,000 ($250,000 X 90% = $225,000) but they only were carrying $191,250 ($191,250/250,000 = 76.5%) which was only 76.5% of $250,000, Therefore, with an $80,000 loss, they would only get 76.5% of $80,000 X 76.5% = $61,200.

Please get back to me with any questions.