 Personal finance practice problem using OneNote. Co-insurance provision payment calculation. Prepare to get financially fit by practicing personal finance. OneNote. You're not required to, but if you have access and would like to follow along, we're in the icon on the left hand side, the practice problems tab in the 8040 Co-insurance provision payment calculation tab. Also take a look at the immersive reader tool. The practice problems are in the text area too with the same name, same number, but with transcripts, transcripts that can be translated into multiple languages and either listened to or read in them. Information up top, we got the calculations on down below, focusing in on how the Co-insurance might impact a payout for a potential claim from the insurance company. So our information says we got the home value at the 300,000, the home insured for, in other words, the covered amount is up to 230,000. Therefore, it's less than the home value as we can see. We have a Co-insurance provision at the 80%. So we're looking at how that Co-insurance provision might impact a potential claim. In other words, an insurable event happening, us looking for a payout, having a claim for the insurance company of the 15,000. So to think about that, and there's no deductible involved here, and then we got how much would the insurance company pay that's gonna be our calculation. Let's first think about the Co-insurance provision with a little blurb on the right-hand side at property insurance provision that penalizes the insured's loss recovery if the limit of insurance purchased by the insured is not equal to or greater than a specified percent, commonly 80% as we have here, of the value of the insured property. So we're not insuring up to 80% of the property, and that could have an impact then on the claim. So when we think about the calculation, we're gonna be thinking about, do we have insurance up to at least the 80% if we're not covering the whole value of the home? And if not, do we have the Co-insurance provision that might kick in and then limit any possible claims? Continuing on with the blurb, the Co-insurance provision specifies that the insured will recover no more than the following, the amount of the loss multiplied by the ratio of the amount of insurance purchased, the limit of the insurance to the amount of insurance required, the value of the property on the date of loss multiplied by the Co-insurance percent, less the deductible. So we don't have the deductible. We're not gonna worry about that because we don't have one here. The amount of the loss that is not payable to the insured as a result of failure to comply with the Co-insurance provision is commonly referred to as a Co-insurance penalty. So we didn't have enough in insurance under this Co-insurance provision. And so we've got this penalty that's gonna dock us on the claim. So in commercial property insurance policies, it is sometimes possible to avoid the possibility of a Co-insurance penalty with an agreed value provision. So let's take a look at the calculations based on that information. So let's first think about whether or not the percent insured is at that 80%. So we got the home insured for 230,000. That's the amount, the coverage amount. And the value of the home, we're saying now is 300,000. So that means that if we take the percentage, of course, we do our little division problem, the ratio of the 230,000 divided by the 300,000, we get about 76.67% about. So that's below the 80%, as you can see. So now we've got an issue. So if we have a claim, so the home value is the 300,000, 80% of the 300,000 would give us the required coverage, how much we should have in order to be in compliance with the Co-insurance provision. So we should be insured at the 240. We're not, we're below that, we're at the 230. In other words, we're not at the 80%, as we can see. So if we have a claim, that could cause us a problem. So now we're gonna say the claim is $15,000. We had an insurable event that's covered. We're trying to get $15,000 from the insurance company, but we've got this Co-insurance provision. So now we're gonna use this ratio to cut down the claim. So the home insured for the coverage amount, this is what we actually insured it for, the 230,000, but the required insurance based on that Co-insurance provision, 80% of the value, which is the 300,000 times the 80%, gives us the 240. So then if we look at the ratio there, we're gonna say this is how much we have covered for, 230,000, they want us to be up to and the Co-insurance provision, 80%, which would be 240,000. Therefore, we're only at the 95.83 about of coverage. So therefore our claim of 15,000, they're only gonna give us 95.83 of it based on this information and our calculation here. So I'm gonna take that amount times the 15,000 and that lowers the amount we might get by the 14,375. Got kind of a penalty, the Co-insurance penalty of the minus the 15,000 to 625 due to the fact that we had insurance less than that 80%. Now we do work this in Excel and so when we work these kind of problems in Excel, we'll try to set up our Excel worksheet so you can kind of automate this stuff using Excel formula. So I think these are great little problems to just practice your Excel skills and some formulas in it. So I highly recommend just mapping this stuff out and practicing putting this data into an Excel worksheet possibly just putting this data up top into an Excel worksheet and pulling that information to do your calculations.