Unit Four Lesson Two

Unit Four Lesson Two

by Roselin Rodriguez -
Number of replies: 7

The following question is intended to assist you with a better understanding of the homeowner's policies. Answer it and then click below to check your response.

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).

The answer is $3,500 but I thought it was $3,000 (minus deductible)

 

Can someone thoroughly explain so that I may comprehend a little better please?

 

Thanks!

In reply to Roselin Rodriguez

Re: Unit Four Lesson Two

by Jan Bradburn- -

Roselin,

This is a coinsurance question.  The property is valued at $125,000 and it must be insured to 80% of its' value which is $100,000. Please use the coinsurance formula to answer this question and if you have further questions, please let me know.

Jan

In reply to Jan Bradburn-

Re: Unit Four Lesson Two

by Roselin Rodriguez -

I did. I thought it was the value of the dwelling divided by the value of the property after multiplied by 80% times the loss of $5k minus the deductible of $500.  70,000/100,000 X 5,000 - 500 = 3,000. Please explain. Thank you for your time.

In reply to Roselin Rodriguez

Re: Unit Four Lesson Two

by Jan Bradburn- -

Roselin,

There is a specific order of the operations for a coinsurance question.  You have to work coinsurance problems in this order:

1.            Value of property X coinsurance percentage ($125,000 X 80% = $100,000)

2.            Limit of insurance/answer from step #1 ($70,000/$100,000 = .7

3.            Loss X answer from step #2 ($5000 X .7 = $3500)

You do not subtract the deductible in a coinsurance problem.

Jan


In reply to Jan Bradburn-

Re: Unit Four Lesson Two

by Roselin Rodriguez -

Thank you. That was my misunderstanding. I thought you were supposed to subtract it.

 

Also, I have another question. In the Business Auto Policy section intro it states that 20% of the Florida Exam will involve questions about the Auto sections. Do you have approximate percentages for the rest of the sections?

 

Thank you.

In reply to Roselin Rodriguez

Re: Unit Four Lesson Two

by Jan Bradburn- -

Roselin,

The percentages for all sections are listed in the front of the state study manual starting on page 2.

Jan