Kerry has a $120,000 homeowners policy limit. How much will he be responsible for paying after a $32,000 damage assuming an 80% coinsurance requirement?

To determine how much Kerry will be responsible for paying after the damage to his property, it’s essential to apply the coinsurance requirement alongside the policy limit. In this case, the homeowners policy has a limit of $120,000 and a coinsurance requirement of 80%.

First, calculate the minimum required coverage based on the coinsurance requirement. To satisfy the 80% coinsurance provision, the required amount of insurance is calculated as follows:

Required Coverage = Policy Limit × Coinsurance Percentage

Required Coverage = $120,000 × 0.80 = $96,000

Kerry's property sustained $32,000 in damages. However, since his policy limit is $120,000 and the required coverage is $96,000, he has adequate insurance to cover the damage in line with the coinsurance requirement.

Next, apply the formula for coinsurance penalties:

Amount to be paid by the insured = (Amount of Loss - Amount of Insurance Carried / Required Amount of Insurance) × Amount of Loss

Substituting in the values we have:

Amount of Insurance Carried = $120,000 (since he is insured for the full policy limit)

Required Amount of Insurance = $96,000

Amount of Loss =