A company has a businessowners policy on a building valued at $300,000 with $150,000 of insurance. How much will the insured company be paid in case of a loss?

The scenario describes a situation involving a businessowners policy and raises key considerations regarding the required level of insurance coverage. The coinsurance clause is a critical aspect of many property insurance policies, which often requires policyholders to carry a certain percentage of the property's value in insurance. This helps ensure that the insured maintains adequate coverage relative to the property's worth.

In this case, the building is valued at $300,000, but the insurance coverage is only $150,000. Therefore, the insured is underinsured based on the coinsurance requirement, which typically aims to encourage policyholders to insure their properties closer to their actual value. Because the company has chosen to insure the building for less than it is worth, in the event of a loss, a coinsurance penalty may apply.

The coinsurance formula will determine the actual payout based on the amount of insurance carried versus the amount that should have been carried based on the property’s value. Since the company did not meet the required insurance amount relative to the value of the building, the payout will likely be limited by this formula, rather than paying the entire loss amount or the total insured value.

Thus, the presence of a coinsurance clause suggests that you must use the coinsurance formula to arrive at the correct compensation