Under NFIP, the coinsurance provision is the lesser of which two amounts?

Under NFIP, the coinsurance provision is the lesser of which two amounts?

• A. 80% of the property's value
• B. the max coverage limit
• C. the actual cash value
• D. replacement cost value

Answer: (C)

The concept at work is how NFIP coinsurance limits your payout when coverage isn’t kept up to the required level. NFIP requires carrying insurance equal to 80% of the building’s replacement cost to get full coverage. When you’re under that amount, the payment is determined by comparing two figures: 80% of the replacement cost (the target level) and the actual cash value (ACV) of the property (the value after depreciation). The settlement is the lesser of those two amounts. Since ACV is typically lower than 80% of replacement cost, the payout is usually limited to the actual cash value when underinsured. That’s why the correct choice is actual cash value.

The concept at work is how NFIP coinsurance limits your payout when coverage isn’t kept up to the required level. NFIP requires carrying insurance equal to 80% of the building’s replacement cost to get full coverage. When you’re under that amount, the payment is determined by comparing two figures: 80% of the replacement cost (the target level) and the actual cash value (ACV) of the property (the value after depreciation). The settlement is the lesser of those two amounts. Since ACV is typically lower than 80% of replacement cost, the payout is usually limited to the actual cash value when underinsured. That’s why the correct choice is actual cash value.