A building that has an actual cash value of $200,000 at the time of loss.
Limit of insurance on the policy is $140,000.
Coinsurance percentage: 80% ACV (actual cash value)
Amount of loss to the building from covered peril is $40,000
Deductible of $1,000
Amount of insurance required= .80 X$200,000= $160,000
Loss payment = ($140,000/$160,000 X $40,000) - $1,000
= (.875 x $40,000) - $1,000
= $35,000- $1,000
If the amount of insurance carried by the insured had been $160,000 or more, the insurance company would have paid out $39,000, the amount of loss less the deductible.
We realize Coinsurance isn't the most exciting subject to discuss or read about in a blog, but as you can see it's important for a policyholder to understand. If you have any other questions regarding this subject, or anything else pertaining to Business Insurance, in Austin, TX, please feel free to contact us today. Thanks for reading!