What purpose do insurance-to-value provisions serve in property insurance policies?

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What purpose do insurance-to-value provisions serve in property insurance policies?

A. They discourage insurance fraud by ensuring that the property is worth the value requested in the policy limits.
B. They encourage insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property.
C. They establish the maximum amount the insurance company will pay for any loss.
D. They establish the options available to the insurance company in settling the loss.

Answer: B. They encourage insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property.

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An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay?

An insured's building has an actual cash value of $200,000, and he has insured the property for $120,000 with an 80% coinsurance clause. A $40,000 loss occurs. How much will the policy pay? a) $0 b) $30,000 c) $32,000 d) $40,000 Answer: B

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