The 80 Percent Rule is a form of what insurance concept?

The 80 Percent Rule is a form of what insurance concept?

• A. Deductible
• B. Coinsurance
• C. Subrogation
• D. Liability

Answer: (B)

Coinsurance in property insurance uses a required percentage of a property's value to determine how much of a loss the insurer will cover. The 80 Percent Rule specifies that you must insure the property for at least 80% of its replacement cost. If you meet that threshold, you’ll typically receive the full loss amount, up to the policy limit. If you fall short, the payout is reduced in proportion to how much your coverage falls short of the 80% requirement. This encourages proper coverage and protects the insurer from covering underinsured properties at full value. The other terms don’t describe this mechanism: a deductible is the out-of-pocket amount you pay before benefits apply; subrogation is the insurer’s right to pursue a third party for recovery after paying a claim; liability concerns who is legally responsible for damages, not how coverage is calculated based on insured value.

Coinsurance in property insurance uses a required percentage of a property's value to determine how much of a loss the insurer will cover. The 80 Percent Rule specifies that you must insure the property for at least 80% of its replacement cost. If you meet that threshold, you’ll typically receive the full loss amount, up to the policy limit. If you fall short, the payout is reduced in proportion to how much your coverage falls short of the 80% requirement. This encourages proper coverage and protects the insurer from covering underinsured properties at full value. The other terms don’t describe this mechanism: a deductible is the out-of-pocket amount you pay before benefits apply; subrogation is the insurer’s right to pursue a third party for recovery after paying a claim; liability concerns who is legally responsible for damages, not how coverage is calculated based on insured value.