Joe owned a house that would cost $200,000 to replace. He took out an insurance policy for only $100,000, reasoning that any damage that would take place would likely be under that amount. In fact, there was a fire and the total loss was $50,000. Indicate what problems Joe might run into when he tries to collect.

If the value of the house is $200,000 and he has only $100,000 coverage on it, then he may be considered a co-insurer for the difference, depending on the terms of the contract. (For example, if the contract requires him to keep at least 80% of the value covered by insurance and he has only 50% coverage, he would be the co-insurer for the difference of 30%.) On any claim, therefore, he will have to bear a portion of the loss himself.