How is the co-insurance formula calculated?

The co-insurance formula is a method used in property insurance to determine the amount payable by the insurer when a loss occurs. The correct answer involves calculating the proportion of the insurance coverage in relation to the total value of the insured property at risk, often referred to as "Did" and "Should."

In this context, "Did" represents the actual amount of insurance coverage a policyholder has taken out, while "Should" indicates the amount of insurance the policyholder should have based on the total value of the property. The formula itself helps to penalize the policyholder if they have insufficient coverage, which is crucial in enforcing responsible insurance practices.

When there’s a loss, the amount recoverable is calculated by multiplying the loss amount by the ratio derived from the formula: Did divided by Should. This ensures that the insurance payout reflects the actual coverage in relation to the full value of the property, encouraging policyholders to insure their assets adequately.

Other choices do not accurately represent the co-insurance principle. The option involving "Loss x Amount of Insurance" does not take into account the proportion of coverage versus value, while the choice about "Amount Insured / Total Insured" lacks a clear connection to the loss being claimed. Finally, calculating "Claim