Florida Contractor Practice Exam

What amount will the insurance company pay for a $20,000 fire loss, given a builder's risk insurance of $120,000 on a $200,000 building with an 80% co-insurance clause?

1. $20,000

2. $15,000

3. $12,000

4. $19,000

The correct answer is: $15,000

The insurance payout in this scenario is calculated based on the co-insurance clause and the amount of insurance coverage in relation to the property's value. A co-insurance clause typically requires that a property be insured for a certain percentage of its total value to receive the full benefits of coverage in the event of a loss. In this case, the building is valued at $200,000 with an 80% co-insurance requirement. This means that to comply with the co-insurance clause, the property should be insured for at least $160,000 (which is 80% of $200,000). However, the builder's risk insurance is only $120,000. To determine how much the insurance company will pay for a $20,000 fire loss, you calculate the ratio of the insured amount to the required amount under the co-insurance obligation. The calculation steps are as follows: 1. Find the required insurance amount: 80% of $200,000 = $160,000. 2. Calculate the ratio of the coverage amount to the required amount: $120,000 (actual coverage) / $160,000 (required coverage) = 0.75 or 75%. 3. Since the loss is $20