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Question: You insure your $200,000 home under a HO-3 policy with an 80% coinsurance provision, deciding to purchase $150,000 in coverage. You sustain a $10,000 covered loss. What will be your claim settlement (ignoring any deductible)

Options:

  1.  $10,000
  2.  $9,500
  3.  $9,375
  4.  $7,500
  5.  $0

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1 Answer

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Best answer

3. $9,375

You insure your $200,000 home under a HO-3 policy with an 80% coinsurance provision, deciding to purchase $150,000 in coverage. You sustain a $10,000 covered loss. Your claim settlement after ignoring any deductible will be $9,375.


Explanation:

We can calculate the claim settlement amount using the formula (co-insurance);

Coinsurance_formula

Loss payment (taking deductible = 0 as ignoring);

= (insurance coverage / insurance limit) x Loss

= ($150,000/$160,000) x $10,000

= $9,375

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