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6 June, 00:27

ABC Company insured its building on a replacement cost basis for $700,000 under a property insurance policy that included an 80 percent coinsurance clause. The building had a replacement cost of $1 million when it sustained a $40,000 loss. How much will ABC Company receive from its insurer, assuming no deductible applies?

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  1. 6 June, 02:10
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    amount eligible for payment = $35,000

    Explanation:

    Given data

    Insurance building = $700,000

    insurance Policy = 80%

    Sustained cost = $40,000

    Replacement cost = $1 million = $1,000,000

    solution

    we get here first Insurance required that is express as

    Insurance required = Cost of building * Co insurance ... 1

    put here value and we get

    Insurance required = $1,000,000 * 0.80

    Insurance required = $800,000

    so amount eligible for payment will be as

    amount eligible for payment = (Insurance Carried : Insurance Required) * Loss ... 2

    put here value and we get

    amount eligible for payment = $700,000 : ($1,000,000 * 80%) * ($40,000)

    amount eligible for payment $700,000 : $800,000 * $40,000

    amount eligible for payment = 0.875 * $35,000

    amount eligible for payment = $35,000
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