Registered Insurance Brokers of Ontario (RIBO) Practice Exam

To determine how much the insurer will pay for the fire damage under these circumstances, it's essential to understand how the co-insurance clause works. A co-insurance clause requires the policyholder to insure a property for a specified percentage of its total value to receive full compensation for any loss.

In this case, the building is worth $250,000, and it is being insured for $50,000. According to the 80% co-insurance clause, the policyholder should have insured the property for at least 80% of its value. This 80% amount would be calculated as:

\( 250,000 \times 0.80 = 200,000 \)

This means that the minimum coverage required to avoid a penalty when a claim is made would be $200,000. However, the policyholder only secured $50,000 in coverage.

To find out how much the insurer will pay, the formula typically used in the context of co-insurance claims is:

Claim Payment = (Amount of Insurance Carried / Amount Required to be Insured) × Loss Amount

Substituting in the values:

Claim Payment = \( \left(\frac{50,000}{200,000}\right) \times