Registered Insurance Brokers of Ontario (RIBO) Practice Exam

What affects the claim amount paid by the insurer if the co-insurance rule is not met?

1. Deductible amount only

2. The total value of the damaged property

3. The fractional value based on the co-insurance clause

4. Presence of exclusions in the policy

The correct answer is: The fractional value based on the co-insurance clause

The correct answer focuses on how the co-insurance clause impacts the calculation of claims in property insurance. When the co-insurance requirement is not met, a fractional value is applied to the claim amount, which reflects the proportion of coverage that the insured has relative to the actual value of the property. The co-insurance clause typically mandates that the insured must carry a certain percentage of the total value of the property (often 80%, 90%, or 100%). If the insured fails to maintain this level of coverage, then any claims payment will be reduced based on the ratio of the insurance carried to the insurance required. For instance, if a property is valued at $1,000,000 and the co-insurance requirement is 80%, the insured must have at least $800,000 in coverage. If they only carry $600,000, in the event of a loss, the insurer would apply a penalty based on that ratio when determining the payout for the claim. Considering the other choices, the deductible amount only affects the payout minimally and is not influenced by compliance with the co-insurance requirement. The total value of the damaged property is relevant but does not directly look at the implications of co-insurance. Lastly, while exclusions in the