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WY Property & Casualty practice questions

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Question 1Insurance Principles and Practices

Which of the following is an example of a pure risk?

  1. A fire destroys a warehouse and its inventory Correct answer.
  2. A retailer expands into a new market and sales fall short of projections
  3. A company takes a futures position on a foreign currency
  4. An investor buys stock expecting the price to rise

Explanation

A pure risk involves only the chance of loss or no loss, with no possibility of gain, which is true of fire damage to property. Speculative risks, such as a business expansion, stock purchase, or currency futures position, carry a chance of gain as well as loss.

Question 2Insurance Principles and Practices

In property insurance, insurable interest must exist at which point in time?

  1. At the time of the loss Correct answer.
  2. Only when the application is signed
  3. Only when the first premium is paid
  4. Only after the claim is submitted

Explanation

For property insurance, the insured must have an insurable interest at the time of the loss, since indemnity is measured by the financial interest that existed when the damage occurred. A prior interest that ended before the loss, or an interest acquired afterward, does not support a claim.

Question 3Insurance Principles and Practices

The principle of indemnity in property insurance is intended to:

  1. Pay the original purchase price of any destroyed property
  2. Allow the insured to collect from more than one insurer for the same loss
  3. Restore the insured to the same financial position as before the loss Correct answer.
  4. Punish the party whose negligence caused the loss

Explanation

Indemnity means the insured is made whole financially after a loss but does not profit from it, so recovery is limited to the value of the loss. Payment of original cost or collection from multiple insurers for one loss would produce a gain rather than indemnity.

Question 4Insurance Principles and Practices

A property policy is described as a contract of adhesion, which means:

  1. The contract is enforceable only after a loss has been reported
  2. One party drafts the terms and the other must accept or reject them Correct answer.
  3. The insured may rewrite any term at the time a loss occurs
  4. Both parties negotiate the terms on an equal footing before the policy is issued

Explanation

In a contract of adhesion the insurer writes the policy language and the applicant has no meaningful chance to bargain over it, so ambiguities are generally construed against the drafter. The insured still cannot alter terms unilaterally after a loss.

Question 5Insurance Principles and Practices

A homeowner routinely leaves oily rags piled in the garage because the homeowner simply does not worry about it. This attitude is best classified as:

  1. A legal hazard
  2. A morale hazard Correct answer.
  3. A moral hazard
  4. A physical hazard

Explanation

A morale hazard is indifference or carelessness that increases the chance of loss, such as neglecting ordinary housekeeping. A moral hazard involves dishonesty and an intent to create or exaggerate a loss.

Question 6Insurance Principles and Practices

Which policy section identifies the named insured, the policy period, the limits of liability, and the property insured?

  1. The insuring agreement
  2. The exclusions
  3. The declarations Correct answer.
  4. The conditions

Explanation

The declarations page supplies the identifying facts of the contract, including who is insured, for how long, for how much, and what property is covered. The insuring agreement states the insurer's promise, while conditions and exclusions modify coverage.

Question 7Insurance Principles and Practices

A policy has a $1,000 deductible, and a covered loss of $4,500 occurs. Ignoring all other provisions, how much does the insurer pay?

  1. $3,500 Correct answer.
  2. $1,000
  3. $4,500
  4. $4,000

Explanation

A deductible is subtracted from the covered loss before the insurer pays, so the payment is $4,500 minus $1,000, or $3,500. The deductible represents the portion of the loss retained by the insured.

Question 8Insurance Principles and Practices

A roof has a replacement cost of $20,000 and is 40% depreciated. Under an actual cash value basis, the loss payment is:

  1. $16,000
  2. $8,000
  3. $20,000
  4. $12,000 Correct answer.

Explanation

Actual cash value equals replacement cost minus depreciation: $20,000 × 40% equals $8,000 of depreciation, leaving an actual cash value of $12,000. Replacement cost would pay the full $20,000 where that basis applies.

Question 9Insurance Principles and Practices

A building valued at $400,000 is insured for $240,000 under a policy containing an 80% coinsurance clause. A covered loss of $100,000 occurs. Ignoring any deductible, the insurer pays:

  1. $100,000
  2. $75,000 Correct answer.
  3. $60,000
  4. $80,000

Explanation

The coinsurance requirement is 80% of $400,000, or $320,000, and the insured carried $240,000. The payment is therefore ($240,000 ÷ $320,000) × $100,000 = $75,000.

Question 10Insurance Principles and Practices

An insurer's duty to defend a liability claim is generally:

  1. Broader than the duty to indemnify when allegations could fall within coverage Correct answer.
  2. Ends as soon as the policy limit is paid
  3. Narrower than the duty to indemnify because defense costs erode the limit
  4. Limited to claims the insurer knows are covered

Explanation

The duty to defend is broader than the duty to indemnify because it is triggered by the allegations of a claim that could potentially fall within coverage, even if coverage is later disputed. Defense obligations are not limited to claims the insurer has already determined to be covered.

Question 11Insurance Principles and Practices

Two property policies cover the same building on a pro rata basis. Policy A has a $60,000 limit and Policy B has a $40,000 limit. A $20,000 covered loss occurs. Under pro rata contribution, Policy A pays:

  1. $12,000 Correct answer.
  2. $10,000
  3. $20,000
  4. $8,000

Explanation

Pro rata contribution assigns each policy a share based on its limit relative to total insurance: $60,000 ÷ $100,000 equals 60%, and 60% of $20,000 is $12,000. Policy B then pays the remaining $8,000 so the loss is paid once.

Question 12Insurance Principles and Practices

Which statement best distinguishes a representation from a warranty in an insurance application?

  1. A warranty may be oral, but a representation must be written into the policy
  2. A representation is a promise that coverage depends on literal fulfillment, while a warranty is only an opinion held by the applicant
  3. A representation is a statement believed true; a warranty is a promise that must be literally true Correct answer.
  4. Both must be literally true, but warranties apply only to life insurance

Explanation

A representation is a statement of fact made to the best of the applicant's knowledge, while a warranty is a promise or condition that must be literally satisfied. Breach of a warranty can defeat coverage even if the statement was honestly made.

Question 13Insurance Principles and Practices

An adjuster tells an insured in writing that a late proof of loss will be accepted, and the insurer later denies the claim for late filing. The insured may rely on:

  1. Coinsurance, because the insured shares in the loss
  2. Subrogation, because the insurer may recover the payment from a third party
  3. Abandonment, because the insured turned property over to the insurer
  4. Estoppel, because the insurer gave up a known right and the insured relied on it Correct answer.

Explanation

Waiver is the voluntary surrender of a known right, and estoppel prevents the insurer from later asserting that right when the insured relied on the waiver to its detriment. A written assurance from the adjuster therefore can bar the late-filing defense.

Question 14Insurance Principles and Practices

An applicant for property insurance intentionally conceals a prior arson conviction on the application. The insurer may generally:

  1. Increase the premium but not deny a later claim
  2. Take no action, because applications are not part of the contract
  3. Rescind the policy, because concealing a material fact breaches utmost good faith Correct answer.
  4. Deny the claim only if the concealed fact caused the loss

Explanation

Insurance is a contract of utmost good faith, so intentional concealment of a material fact allows the insurer to rescind the policy. Materiality, not a causal link to the specific loss, is the test for concealment.

Question 15Insurance Principles and Practices

An agent orally binds property coverage effective immediately, and a fire occurs before the policy is issued. The binder generally:

  1. Provides temporary coverage until the policy is issued or the binder expires Correct answer.
  2. Takes effect only when the premium reaches the home office
  3. Is unenforceable, because insurance contracts must be in writing
  4. Covers the loss only if the insurer later decides to issue the policy

Explanation

A binder is temporary evidence of coverage that takes effect on the agreed date and continues until the policy is issued or the binder period ends. Oral binders are enforceable when the agent has authority to bind the insurer.

Question 16Insurance Principles and Practices

Adverse selection is best described as:

  1. The drop in average loss cost as an insurer's book of business grows
  2. The tendency of applicants with higher-than-average loss potential to seek insurance Correct answer.
  3. The insurer's practice of declining every applicant with a prior claim
  4. The chance that one large loss will exceed the insurer's surplus

Explanation

Adverse selection occurs when people with greater-than-average loss potential are the most eager to buy or keep coverage, which can push actual losses above the assumptions used in rating. Underwriting and proper rate classification are used to control it.

Question 17Insurance Principles and Practices

The law of large numbers supports insurance pricing because it holds that:

  1. Losses from catastrophic perils become fully predictable with enough data
  2. Each individual risk becomes more predictable as its policy period lengthens
  3. Larger groups of similar exposures produce losses that closely match expectations Correct answer.
  4. Insurers must charge identical rates to every policyholder

Explanation

As the number of independent, similar exposure units increases, actual loss results converge on the expected results used in ratemaking. This convergence is what makes pooled premiums a reliable way to fund losses.

Question 18Insurance Principles and Practices

An insured whose building is a total loss wants to hand the damaged property over to the insurer and collect the full policy limit. The insured may:

  1. Do so, if the loss was caused by a covered peril
  2. Do so, if the damaged property is worth less than the deductible
  3. Do so, because the insurer must accept salvage after paying the limit
  4. Not do so, because abandonment requires the insurer's consent Correct answer.

Explanation

An insured has no right to abandon damaged property to the insurer without the insurer's consent; salvage is taken at the insurer's option. If the insurer does take title to salvage after payment, it may dispose of it to offset the loss.

Question 19Insurance Principles and Practices

The main purpose of policy exclusions is to:

  1. Define which exposures the insurer does not intend to cover Correct answer.
  2. Reduce the premium by removing every risk that could produce a loss
  3. Guarantee that a loss excluded under one policy is covered under another
  4. Shift excluded losses to other insurers so every loss is paid once

Explanation

Exclusions mark the boundaries of coverage by removing exposures the insurer cannot price, considers catastrophic or uninsurable, or intends to leave to another form. They narrow the insuring agreement rather than eliminate coverage entirely.

Question 20Insurance Principles and Practices

Which of the following is a typical duty of the insured after a covered loss?

  1. Pay the following year's premium in advance
  2. Obtain the insurer's consent before making temporary repairs
  3. Hire a public adjuster to act for the insurer
  4. Give prompt notice and submit a signed proof of loss Correct answer.

Explanation

Standard conditions require the insured to give prompt notice of loss and to furnish a signed and sworn proof of loss within a stated time. The insured is also expected to make reasonable temporary repairs to protect property from further damage rather than wait for consent.

Question 21Insurance Principles and Practices

A commercial building insured under a policy containing a standard mortgage clause is destroyed by a fire the insured set intentionally. The mortgagee holds an unpaid balance of $150,000. Under the standard mortgage clause, the mortgagee:

  1. May still collect to the extent of its interest, subject to its own duties Correct answer.
  2. May collect only if it proves the insured did not act intentionally
  3. Loses all rights, because the insured's fraud voids the entire policy
  4. May collect the full policy limit regardless of the loan balance

Explanation

A standard mortgage clause creates rights for the mortgagee that are independent of the insured's conduct, so the mortgagee may recover to the extent of its interest even when the insured caused the loss. The mortgagee must satisfy its own obligations, such as submitting proof of loss, and the insurer may then pursue subrogation against the insured.

Question 22Insurance Principles and Practices

A homeowners policy provides replacement cost coverage on the dwelling. After a covered partial loss, the insured decides not to repair the damage. The insurer will generally:

  1. Pay actual cash value unless the property is repaired or replaced Correct answer.
  2. Pay replacement cost only if the loss exceeds the deductible
  3. Pay the full replacement cost because the form provides it
  4. Pay nothing, because no repair was made

Explanation

Replacement cost coverage pays the cost to repair or replace with new material of like kind and quality, but only after the property is actually repaired or replaced. If the insured elects not to rebuild, the claim is settled on an actual cash value basis, which reflects depreciation.

Question 23Insurance Principles and Practices

An insured suffers a $50,000 loss caused by a third party. The insurer pays its $40,000 policy limit, and the insured later recovers $50,000 from the third party. Under the made-whole doctrine, the insured:

  1. Keeps $10,000 to be made whole before the insurer is reimbursed Correct answer.
  2. Must turn the entire $50,000 over to the insurer
  3. Splits the recovery equally with the insurer regardless of the loss
  4. Keeps the entire recovery and the policy proceeds

Explanation

Under the made-whole doctrine, the insured must be fully compensated for the loss before the insurer shares in a third-party recovery. Here the insured keeps $10,000 to close the gap between the $50,000 loss and the $40,000 paid, and the insurer recovers the $40,000 it paid.

Question 24Insurance Principles and Practices

A windstorm tears off part of a roof, and rain entering through the opening damages the interior. The policy covers wind but excludes rain damage to the interior. The interior damage is generally:

  1. Excluded, because rain physically caused the interior damage
  2. Covered, because wind was the efficient proximate cause of the damage Correct answer.
  3. Covered only if the insured also buys flood insurance
  4. Excluded, because two separate perils contributed to the loss

Explanation

Under the efficient proximate cause rule, coverage applies when a covered peril sets the chain of events in motion and any excluded peril is part of that same chain. Wind opening the roof is the efficient cause, so the resulting rain damage is treated as part of the wind loss.

Question 25Insurance Principles and Practices

A retailer's only supplier suffers a fire and cannot deliver inventory, forcing the retailer to close for three weeks. Under a standard business income form covering the retailer's own property, the lost income is:

  1. Covered after a 72-hour waiting period
  2. Covered, because fire is a covered peril
  3. Covered up to the limit that applies to the supplier's building
  4. Not covered, because the retailer's own property was not damaged Correct answer.

Explanation

Business income coverage responds to direct physical damage to the insured's own property, so a supplier's fire is an indirect loss that the standard form does not reach. Coverage for that exposure requires a contingent business income endorsement.

Question 26Insurance Principles and Practices

An insured intentionally damages covered property in order to collect insurance proceeds. This is an example of which type of hazard?

  1. Speculative risk
  2. Moral hazard Correct answer.
  3. Morale hazard
  4. Physical hazard

Explanation

Moral hazard arises from dishonesty or character defects that increase the likelihood or severity of loss. The intentional act to collect insurance is the classic example.

Question 27Insurance Principles and Practices

A manufacturer discontinues a product line because of liability concerns. This risk management technique is:

  1. Retention
  2. Loss reduction
  3. Avoidance Correct answer.
  4. Transfer

Explanation

Avoidance eliminates the exposure entirely by not undertaking the activity that creates it. Retention keeps the risk, transfer shifts it to another party, and reduction lessens its severity.

Question 28Insurance Principles and Practices

In property insurance, insurable interest must exist:

  1. At no particular time during the policy term
  2. Only when the policy is delivered
  3. Only when the application is signed
  4. At the time of the loss Correct answer.

Explanation

Property insurance indemnifies actual financial loss, so the insured must have an insurable interest when the loss occurs. Life insurance, by contrast, requires insurable interest at inception.

Question 29Insurance Principles and Practices

The principle of indemnity provides that after a loss the insured should:

  1. Be permitted to profit when the loss is especially severe
  2. Collect the full limit from every policy that names the property
  3. Be restored to approximately the same financial position as before the loss Correct answer.
  4. Receive brand-new replacements for every damaged item regardless of age

Explanation

Indemnity restores the insured to roughly the pre-loss financial position without providing a windfall. Replacement cost and actual cash value are simply different methods of measuring that indemnity.

Question 30Insurance Principles and Practices

An insurance policy is described as a contract of adhesion because:

  1. Both parties negotiate the terms on equal footing
  2. A court must approve the wording before the policy takes effect
  3. The insured writes the policy language and the insurer accepts it
  4. The insurer drafts the terms and the insured accepts or rejects them Correct answer.

Explanation

The insurer prepares the policy on a take-it-or-leave-it basis, so ambiguities are construed against the drafter. This is what makes the policy a contract of adhesion.

Question 31Insurance Principles and Practices

An insurance policy is a unilateral contract because:

  1. Only the insurer makes a legally enforceable promise Correct answer.
  2. The insured may cancel at any time without any consequence
  3. Neither party is bound until a covered loss occurs
  4. Both parties make enforceable promises to each other

Explanation

The insured pays premium and the insurer promises to pay covered claims, but only the insurer's promise is legally enforceable by the insured. That makes the contract unilateral.

Question 32Insurance Principles and Practices

An insurance company that is owned by its policyholders is called a:

  1. Stock insurer
  2. Surplus lines insurer
  3. Reciprocal exchange
  4. Mutual insurer Correct answer.

Explanation

A mutual insurer is owned by its policyholders, who may receive dividends or participate in governance. A stock insurer is owned by shareholders.

Question 33Insurance Principles and Practices

An insurer furnishes an agent with business cards, signage, and company application forms showing the agent can write policies for the company. A client reasonably relies on this, and the agent issues coverage the insurer never expressly authorized. The agent's authority is best described as:

  1. Fiduciary authority
  2. Express authority
  3. Implied authority
  4. Apparent authority Correct answer.

Explanation

Apparent authority arises when the insurer's conduct leads a third party to reasonably believe the agent has authority. Here the insurer's own materials created that belief.

Question 34Insurance Principles and Practices

A commercial lease requires the landlord and tenant to waive subrogation rights against each other. The practical effect of this waiver is that:

  1. The insurer waives recovery rights against the other party after paying a loss Correct answer.
  2. The landlord automatically becomes an additional insured under the tenant's policy
  3. The tenant's insurer may still sue the landlord after paying the claim
  4. The insured forfeits coverage for all future fire losses

Explanation

A waiver of subrogation prevents the insurer from stepping into the insured's shoes against the other party after paying a claim. Leases commonly include such mutual waivers to avoid litigation between landlord and tenant.

Question 35Insurance Principles and Practices

Two liability policies cover the same loss, and one insurer pays more than its share. Its right to recover the excess from the other insurer is called:

  1. Salvage
  2. Abandonment
  3. Contribution Correct answer.
  4. Subrogation

Explanation

Contribution is the right of an insurer that paid more than its share to recover the excess from other insurers covering the same loss. Subrogation, by contrast, is the right against the third party who caused the loss.

Question 36Insurance Principles and Practices

A covered windstorm blows down a wall, and the falling wall crushes merchandise inside the building. Under the efficient proximate cause doctrine, the loss to the merchandise is:

  1. Not covered because collapse is excluded in every property policy
  2. Covered only if the merchandise was separately scheduled on the policy
  3. Covered because the windstorm is the predominant cause of the chain Correct answer.
  4. Not covered because the merchandise was crushed rather than blown away

Explanation

When a covered peril sets in motion an unbroken chain of events, the resulting loss is covered even if a later event in the chain would be excluded. The windstorm is the efficient proximate cause here.

Question 37Insurance Principles and Practices

After a covered fire partially damages a building, the local building code requires the undamaged portion to be demolished and rebuilt to current code. The coverage part that addresses these additional costs is:

  1. Preservation of property coverage
  2. Ordinance or law coverage Correct answer.
  3. Collapse coverage
  4. Debris removal coverage

Explanation

Ordinance or law coverage pays the increased cost of construction required by building codes, including demolition of undamaged portions. Standard policies otherwise exclude these code-driven costs.

Question 38Insurance Principles and Practices

A valued policy is one that:

  1. Pays only after an independent appraisal of the damaged property is completed
  2. Requires the insured to report inventory values to the insurer each month
  3. Pays the actual cash value of the loss measured at the time of damage
  4. States in advance the agreed value of the insured property for a total loss Correct answer.

Explanation

A valued policy fixes the amount payable for a total loss in advance, avoiding later disputes over value. Some states require valued policies for real property.

Question 39Insurance Principles and Practices

A single limit of insurance that applies to two or more scheduled buildings at different locations is provided by a:

  1. Reporting form policy
  2. Blanket policy Correct answer.
  3. Valued policy
  4. Specific policy

Explanation

A blanket policy applies one limit across multiple items or locations, allowing the limit to be used where the loss occurs. A specific policy insures each item separately.

Question 40Insurance Principles and Practices

A policy requires the insured to submit monthly statements of inventory value and pays a deposit premium at inception. This is best described as a:

  1. Reporting form policy Correct answer.
  2. Valued policy
  3. Franchise deductible policy
  4. Blanket policy

Explanation

A reporting form policy uses a deposit premium and periodic reports of values, with the final premium adjusted to the actual exposure. It suits businesses whose values fluctuate.

Question 41Insurance Principles and Practices

A professional liability policy is written on a claims-made basis. A claim is first reported during the current policy period for an act that occurred several years earlier, after the retroactive date. Coverage is:

  1. Covered because the claim was first made in the current policy period Correct answer.
  2. Denied because the act occurred before the current policy period began
  3. Denied because professional liability is written only on an occurrence basis
  4. Covered only if the insured had continuous coverage from the date of the act

Explanation

A claims-made policy responds to claims first made during the policy period, subject to any retroactive date. Because the act occurred after the retroactive date, the claim falls within coverage.

Question 42Insurance Principles and Practices

The aggregate limit of liability in a liability policy caps:

  1. The maximum amount payable for any single occurrence or accident
  2. The total payable for all covered claims during the policy period Correct answer.
  3. The total amount payable for defense costs and claim expenses only
  4. The maximum amount payable for property damage claims only

Explanation

The aggregate limit is the total amount the insurer will pay for all covered claims within the policy period. It operates in addition to the per-occurrence limit, which caps any single loss.

Question 43Insurance Principles and Practices

A certificate of insurance provided by an agent to a third party:

  1. Creates coverage for the certificate holder as an additional insured
  2. Evidences that coverage exists but does not by itself amend or create coverage Correct answer.
  3. Replaces the declarations page of the underlying insurance policy
  4. Guarantees the policy will not be canceled during the policy period

Explanation

A certificate is evidence that a policy exists at the time it is issued, but it does not change the policy or confer insured status. Additional insured status requires an endorsement to the policy.

Question 44Insurance Principles and Practices

An insurer agrees to defend its insured against a claim while it continues to investigate whether the policy covers the loss. To protect its right to later deny coverage, the insurer should issue:

  1. A notice of cancellation
  2. A reservation of rights letter Correct answer.
  3. A proof of loss form
  4. A certificate of insurance

Explanation

A reservation of rights letter tells the insured that the insurer is defending the claim without waiving its right to contest coverage later. It protects the insurer from an estoppel argument.

Question 45Insurance Principles and Practices

A state follows pure comparative negligence. A claimant who is 30 percent at fault for an auto accident with $100,000 in damages recovers:

  1. $100,000, because the other driver was also at fault
  2. Nothing, because any fault on the claimant's part bars recovery
  3. $30,000, representing the claimant's own share of the damages
  4. $70,000, reduced by the claimant's percentage of fault Correct answer.

Explanation

Under pure comparative negligence, the claimant's damages are reduced by the claimant's percentage of fault even if that fault exceeds the other party's. Thirty percent fault reduces the award to seventy percent.

Question 46Insurance Principles and Practices

The McCarran-Ferguson Act of 1945 provides that:

  1. Insurers are exempt from all state and federal regulation of their rates
  2. All insurance rates must be filed with and approved by a federal agency
  3. The federal government has exclusive authority to regulate the business of insurance in all states
  4. State regulation of insurance continues, and federal antitrust laws apply only where states do not regulate Correct answer.

Explanation

Congress deferred to the states and allowed federal antitrust law to reach insurance only to the extent the business is not regulated by state law. This is the foundation of state-based insurance regulation.

Question 47Insurance Principles and Practices

A captive insurance company is best described as:

  1. A pool of insurers that share catastrophic losses under a treaty
  2. A state-run insurer of last resort for high-risk property exposures
  3. A subsidiary formed by a parent mainly to insure the parent's own risks Correct answer.
  4. An insurer that writes only surplus lines coverage for unusual risks

Explanation

A captive is an insurer owned by the organization it insures, allowing the parent to formalize self-insurance and capture underwriting results. It may also be licensed to insure other related risks.

Question 48Insurance Principles and Practices

An insurer earned $10 million in premiums and incurred $6.5 million in losses and loss adjustment expenses. Its loss ratio is:

  1. 6.5 percent
  2. 35 percent
  3. 65 percent Correct answer.
  4. 153.8 percent

Explanation

The loss ratio equals incurred losses and loss adjustment expenses divided by earned premium, or $6.5 million divided by $10 million. The result is 65 percent.

Question 49Insurance Principles and Practices

When an insured and insurer agree that a loss is covered but cannot agree on the amount of damage, the policy condition that provides for each side to select a competent appraiser is:

  1. Salvage
  2. Arbitration
  3. Appraisal Correct answer.
  4. Subrogation

Explanation

The appraisal condition resolves disputes about the amount of loss, with each party choosing an appraiser and the appraisers possibly selecting an umpire. It does not decide whether coverage applies.

Question 50Insurance Principles and Practices

A building with a replacement value of $1,000,000 is insured under a commercial property policy with a $600,000 limit and an 80 percent coinsurance clause. A covered fire causes $200,000 in damage, and no deductible applies. How much will the insurer pay for the loss?

  1. $200,000
  2. $160,000
  3. $120,000
  4. $150,000 Correct answer.

Explanation

The coinsurance clause requires a limit of at least 80 percent of the property's value, or $800,000 here. Because the insured carried only $600,000, the loss is paid at the ratio of carried insurance to required insurance: $600,000 divided by $800,000 equals 0.75, and 0.75 times the $200,000 loss is $150,000.