What is the formula for Co-Insurance in property valuation?

The correct answer involves understanding the concept of coinsurance in property insurance, which is designed to encourage policyholders to insure their property to its full value. The formula is critical in determining the amount of insurance a property owner should carry to avoid penalties during a claim.

In this context, the "FV of Policy" refers to the face value or the amount of insurance coverage the policy provides. The "co-insurance %" reflects the percentage of the property value that must be insured. The "FMV of Property" is the fair market value of the property at the time of the loss.

The correct formula calculates the amount that the policy must cover to meet the coinsurance requirement: the face value of the policy is divided by the product of the coinsurance percentage and the fair market value of the property. This ensures that the policyholder maintains sufficient coverage relative to the property's value, thus helping to avoid a penalty for underinsurance if a claim occurs.

Using this formula, if the policyholder has insufficient coverage relative to the property's value, they will be penalized in the amount of their claim based on the ratio of insurance carried to what should have been carried, according to the coinsurance requirement. This emphasizes the importance of insured coverage aligning with the property's fair