Coinsurance Calculation Examples
The insured is a “co-insurer” on this loss in the amount of $6,250. For all partial losses, the insured is only going to be paid 87.5% of the damage amount prior to the application of the deductible. Had the loss been $100,000, the insured would be paid ((0.875 x $100,000) – Deductible) which totals $86,500. Again, the insured would be a co-insurer in the amount of $12,500 for the loss.
To be fully insured for partial losses in this example, the insured must carry at least $400,000. Carrying adequate limits assures that the insured will not participate as a co-insurer in any partial loss. However, this is true only of partial losses. Even if the insured fully meets the coinsurance requirements spelled out in the policy, it is still underinsured for a total loss. The insured will not be paid more than the applicable limits of coverage purchased; so if the entire building is destroyed, the maximum the insured in the above example will receive is $400,000 and is underinsured by $100,000.
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