Abby Ellen’s toy store is worth $406,250 and is insured for $209,625. Assume an 80% coinsurance clause and that a fire caused $192,000 damage. What is the liability of the insurance company?

To determine the liability of the insurance company under the 80% coinsurance clause, we can use the formula:

\[
\text{Insurance Liability} = \frac{\text{Amount Insured}}{\text{Required Insurance}} \times \text{Damage Amount}
\]

Where:
- **Amount Insured** is $209,625 (the insured amount).
- **Required Insurance** is 80% of the store's value, which means $ 80\% \times 406,250 = 325,000 $.
- **Damage Amount** is $192,000.

### Step 1: Calculate the coinsurance ratio
\[
\text{Coinsurance Ratio} = \frac{209,625}{325,000} \approx 0.644
\]

### Step 2: Calculate the insurance company's liability
\[
\text{Insurance Liability} = 0.644 \times 192,000 \approx 123,168
\]

So, the insurance company's liability is **$123,168**.

Would you like further details or have any questions? Here are some related questions for deeper understanding:

1. How is a coinsurance clause beneficial to insurance companies?
2. What would be the insurance liability if the store was insured for $300,000?
3. How would the insurance company's liability change if the damage amount were higher than $192,000?
4. Why might businesses choose insurance amounts less than the required coinsurance percentage?
5. Can a policyholder recover the full amount of the damage if they don't meet the coinsurance requirement?

**Tip**: Coinsurance clauses are designed to encourage policyholders to insure their property close to its full value, ensuring fair premium payments for the risk covered.

Learn how to calculate the insurance company’s liability for Abby Ellen’s toy store, valued at $406,250, with an 80% coinsurance clause. The store is insured for $209,625, and a fire caused $192,000 in damage. Discover step-by-step calculations and concepts involving coinsurance and proportional liability.

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