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6 July, 10:41

A commercial building worth $400,000 is insured under a Commercial Property policy for $240,000, and an 80% coinsurance clause applies. A $20,000 loss to the building has occurred. How much will the insured receive when a claim is filed?

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  1. 6 July, 12:53
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    Answer: $15,000

    Explanation: The 80% coinsurance clause on the property means that the insurance policy holder is agreeing to contribute up to 80% of the property's worth. Hence in the event of a loss to the building worth $20,000; the insures policyholder would receive:

    (Actual contribution/expected contribution) x value of loss to the property

    Where : Expected contribution = 80% of property's worth

    ie (80/100) x $400,000 = $320,000

    then the insured is to receive: ($240,000/$320,000) x $20,000 = $15,000
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