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Insurance · Homeowners Policies

An insured's home burns down. The house had $200,000 coverage but was insured to 80% of its $300,000 replacement cost. What is the coinsurance penalty on a $50,000 partial loss?

Reviewed by Jordan Morley, Editorial Lead at 247SimpleTests. Written by the 247SimpleTests Editorial Team from the official source material cited on every question.

Correct answer

$41,667 (coinsurance formula result)

  1. A $0 — coinsurance doesn't apply to partial losses
  2. B $41,667 (coinsurance formula result)
  3. C $50,000 (full payment)
  4. D $40,000

Why this is the answer

Coinsurance formula: (Insurance carried / Insurance required) × Loss. Required: 80% × $300,000 = $240,000. Carried: $200,000. Ratio: $200,000 / $240,000 = 5/6 = 0.833. Payment: 5/6 × $50,000 = $41,667. Because the insured is underinsured (has $200K instead of required $240K), they receive only 83.3% of the loss. This coinsurance provision encourages adequate coverage. On total losses, the policy pays to its limit (full $200,000) regardless of coinsurance — coinsurance typically only penalizes partial losses.

Source: Property Insurance Exam, Coinsurance Calculation

Practice more questions

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About this topic: Homeowners Policies

Homeowners questions cover the HO forms (HO-2 through HO-8), the coverage sections (dwelling, other structures, personal property, loss of use, liability, medical payments), the perils, exclusions and endorsements. This is one of 21 Property Insurance questions on homeowners policies, each with a full explanation on a single study page.

New to this exam? Our Insurance exam guide explains the format, scoring, and how to prepare.

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