Just needed to know how the answer was 3500

Just needed to know how the answer was 3500

by Paul Germain -
Number of replies: 3

An insured has an HO-3, no endorsements, with following limits: A - $70,000, B - $7,000, C - $35,000,D- $14,000. The policy has a $500 deductible ($500 deductible for windstorm/hurricane).

What is the amount payable (if any) when:" A windstorm caused extensive damage to the roof of the insured's residence, requiring replacement of a portion. Cost to replace was $5,000. Taking depreciation into account, the actual cash value was $3,000. At the time of the loss, the replacement value of the dwelling was $125,000"?

$______ is payable. $5,000 less $500 deductible = $4,500,but for full replacement cost settlement, the insured needed not less than 80% of the full replacement value as the coverage A limit ($125,000 x 80% = $100,000).

In reply to Paul Germain

Re: Just needed to know how the answer was 3500

by Jan Bradburn- -
Paul,

This is a coinsurance question. The home is valued at $125,000, but it was only insured for $70,000. Since the property was not fully covered, the policy will not pay the full amount of the loss. You have to use the coinsurance formula (on page 35 of the state manual) to answer this question.

Loss ($5000) X Limit of insurance ($70,000) divided by [Value of property ($125,000) X Coinsurance % (80%)] =

$5000 X $70,000/$100,000 =

$5000 X .7 = $3500

Jan
In reply to Jan Bradburn-

Re: Just needed to know how the answer was 3500

by Scott Smith -

Where does the deductible apply in the above calculation?

In reply to Scott Smith

Re: Just needed to know how the answer was 3500

by Jan Bradburn- -
Scott,

The deductible does not apply in a coinsurance question. You use the formula only.

Jan