If the coinsurance factor applied to a loss exceeds 1, what is the resulting payment?

• A. The policy limit L
• B. The full loss L
• C. The amount covered
• D. The insured pays the excess

Answer: (A)

When the coinsurance factor is greater than one, it means the insured has more than the required coverage for the loss. The insurer’s payment is limited by the policy limit, so the amount paid cannot exceed L. In this case, the insurer pays the full policy limit, up to L, and any excess loss beyond L would be borne by the insured. This is why the resulting payment is the policy limit L.