You insure your $200,000 home under a HO-3 policy with an 80% coinsurance provision, deciding to purchase $150,000

Question

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

Answer 1

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.

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Explanation:

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

Loss payment (taking deductible = 0 as ignoring);

= (insurance coverage / insurance limit) x Loss

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

= $9,375