Halim owns a residential property with an insurable value of . His fire insurance policy has an co-insurance clause and a deductible of . Halim insures his property for . If a fire causes damage amounting to , what is the total compensation paid by the insurer?
Answer and explanation
Correct answer: C.
- Step 1: Calculate required insurance under co-insurance: . Since Halim insured for , he is under-insured and subject to co-insurance penalty.
- Step 2: Apply the formula: .
Answer
.
Why not the others: '' omits the deduction of the deductible; '' subtracts deductible directly from total loss (); '' pays the entire loss ignoring under-insurance.
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