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?

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.