Registered Insurance Brokers of Ontario (RIBO) Practice Exam

An insured building has an ACV of $200,000 and was insured for $195,000, with a 90% coinsurance clause. A fire causes $200,000 in damages. How much will the insurer pay?

1. $195,000

2. $200,000

3. $180,000

4. $170,000

The correct answer is: $195,000

In this scenario, the indemnity payment from the insurer is determined by considering the actual cash value (ACV) of the building, the amount insured, and the coinsurance requirement. The insured building has an ACV of $200,000 and is insured for $195,000. With a coinsurance clause of 90%, the insured must maintain coverage at least equivalent to 90% of the ACV to avoid penalties in the event of a loss. To calculate the required coverage, you take 90% of the ACV, which is $180,000 (90% of $200,000). Since the building is insured for $195,000, it meets the coinsurance requirement because the amount insured exceeds the required minimum coverage. In the event of a total loss, the insurer will typically cover the least of the following: - The actual cash value of the damage ($200,000) - The amount of insurance carried ($195,000) - The actual cash value of the property as of the date of loss ($200,000) Given that the amount insured is $195,000, which is less than the amount of the actual damages incurred but higher than the required coinsurance threshold, the insurer will pay