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 correct response centers on the concept of coinsurance, which applies when a property insurance policy does not provide coverage at the required level relative to the property's value. In this case, the building is valued at $300,000, but it is insured for only $150,000. This indicates that there is a significant underinsurance issue.

Under a coinsurance clause, if a property is insured for less than its full value, the insurer may only pay out a proportion of the loss based on the amount of insurance carried relative to the property's actual value. To determine the payout in the event of a loss, the coinsurance formula is applied, which typically involves comparing the amount of insurance taken to a percentage of the property's value.

This means that if a covered loss occurs, the payout would not be fixed at the amount of the policy but calculated according to how the coverage relates to the value of the building. If the company had insured the building for the required percentage of its value, which is commonly set at 80% or more, it would be more likely to receive full compensation for a loss. However, since there is a shortfall in coverage, the insurer will utilize the coinsurance formula to determine the loss payment. Thus, the