Insurance Payout Calculations

These flashcards summarize key concepts from the lecture on insurance payout calculations, including coinsurance, deductibles, pro-rata loss sharing, coverage percentages, and the difference between replacement cost and actual cash value.

What is the first step in determining the payout with coinsurance?

Locate how much the property is worth.

How do you calculate the 'should' amount in coinsurance?

Multiply the property value by the required percentage, usually 80%.

In the coinsurance example, how much is SpongeBob's property worth?

$200,000.

What payout does SpongeBob receive after a $50,000 loss with $120,000 in insurance?

$37,500.

What is the formula for calculating a payout in coinsurance?

Have ÷ Should × Loss = Pay.

What does a flat deductible do?

It is subtracted directly from the loss.

How do you calculate a percentage deductible?

Multiply the policy limit by the deductible percentage, then subtract from the loss.

Given a 2% deductible on a $200,000 policy, what is the deductible amount?

$4,000.

In the pro-rata method, what is the first step when two companies share a loss?

Add both policy limits to get the total.

How is each company's share of the loss calculated in pro-rata?

Divide each policy's limit by the total and multiply by the loss.

If Squidward has two policies of $60,000 and $40,000, what is the total policy limit?

$100,000.

What percentage of Coverage A does Coverage B represent?

10% of Coverage A.

How much coverage is allocated to trees, shrubs, and plants?

5% of Coverage A.

What is the maximum payout per tree for Sandy's plants?

$500 per tree.

What does a franchise deductible entail?

If loss is less than deductible, payout is $0; if loss is more, full payout is given.

What happens if the loss is $800 with a $1,000 deductible?

$0 is paid.

How do you convert a percentage to a decimal?

Move the decimal two spaces to the left.

What is the difference between Replacement Cost (RC) and Actual Cash Value (ACV)?

RC is the cost to buy new, ACV is RC minus age/depreciation.

If Squidward’s roof costs $10,000 new and is worth $7,000 now, what does insurance pay?

$7,000 initially, then $3,000 after the roof is replaced.