A homeowner files a claim for fire damage. The adjuster inspects and estimates replacement cost at $150,000. The insured has an 80% coinsurance requirement on their policy with $90,000 of insurance. What is the maximum the insurer pays?

Question

Accepted Answer

$112,500 — COINSURANCE FORMULA: Payment = Loss × (Amount Carried ÷ Amount Required). Required coverage = $150,000 × 80% = $120,000. Actual coverage carried = $90,000. Ratio = 90,000 ÷ 120,000 = 0.75. Maximum payment = $150,000 × 0.75 = $112,500. Note this is LESS than the policy limit ($90,000)... wait — actually $112,500 exceeds the policy limit of $90,000 — the insurer would pay the LESSER of the coinsurance calculation ($112,500) and the policy limit ($90,000). So payment = $90,000 (policy limit). The coinsurance calculation shows the maximum the insurer is required to pay without penalty — but the policy limit always caps the payout. The insured is also their own co-insurer for the uncovered portion.

Answer

$150,000

Answer

$75,000 — the coinsurance penalty applies: insured carried 60% of required coverage (90,000 ÷ 150,000 = 0.60) vs required 80%; payment = loss × (carried ÷ required) = 150,000 × (90,000 ÷ 120,000) = $112,500

Answer

$90,000 (policy limit)

A homeowner files a claim for fire damage. The adjuster inspects and estimates replacement cost at $150,000. The insured has an 80% coinsurance requirement on their policy with $90,000 of insurance. What is the maximum the insurer pays?

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