Business Mathematics Brief 12th Edition by Stanley Salzman ,Gary Clendenen, Charles Miller

Exercise 110

Find the amount to be paid by the insurance company in the following problems. Assume that policy includes an 80 % coinsurance clause. (See Examples.)
Using the Coinsurance Formula
Dayton Properties owns a small apartment building with a replacement cost of $760,000. The fire insurance policy has an 80, coinsurance clause and a face value of $570,000. A fire started in the kitchen of a tenant and swept through three apartments, resulting in $144,000 in losses. Find the amount of the loss that the insurance company will pay.
SOLUTION
The policy must have a face value of at least 80, of $760,000 or $608,000 in order to receive the payment for the entire loss. Since the face value of $570,000 is less than 80, of the replacement cost, the company will pay only the following portion of the loss.

The calculator solution to this example uses chain calculations and parentheses to set off the denominator. The result is then subtracted from the fire loss.

Note: Refer to Appendix B for calculator basics.
Finding the Amount f Loss Paid by the nsurance Company
A Swedish investment group owns a warehouse with a replacement cost of $3,450,000. The company has a fire insurance policy with a face value of $3,400,000. The policy has an 80, coinsurance feature. If the firm has a fire loss of $233,500, find the part of the loss paid by the insurance company.
SOLUTION
The business has
a fire insurance policy with a face value of more than 80, of the value of the store. Therefore, the insurance company pays the entire $233,500 loss.