stephanie owns a small warehouse that is insured for $200,000 under a commercial
ID: 2738193 • Letter: S
Question
stephanie owns a small warehouse that is insured for $200,000 under a commercial property insurance policy. THe policy contains an 80 percent coinsurance clause. The warehouse sustained a $50,000 loss because of a fire in a storage area. The replacement cost of the warehouse at the time of loss is $500,000, .
A. What is the insurers liability, if any, for this loss? Show your calculations/formulas.
B. Assume that stephanie carried $500.000 of property insurance on the warehouse at the time of loss. If the amount of loss is 10,000, how much will she collect?
C. Explain the theory or rationale of coinsiurance in a property insurance contract.
Explanation / Answer
i) insurers liability, if any, for this loss = (200000/ (80%* 500000) * 50000 = $ 25,000
ii) if stephanie carried $500.000 of property insurance on the warehouse at the time of loss. If the amount of loss is 10,000, she can collect $ 10,000
iii) The intent of Coinsurance is to dilute the risk and attain equity in rating.
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