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).
Im confused again, why is the answer 3500?
100,000 divided into 70,000 =0.7 0.7X 5000 = 3500 - 500 deductible =3000
OR
5000 replacement cost - 500 deduct =4,500 ( 125,000x.80% = 100,000)
100,000 divided into 70,000 =0.7
0.7 X 4500= 3150???? both are wrong!!!
Do we just forget the deductible and work the coinsurance application like this?
5000 loss , 125000 value X 80% =100,000 , 100,000 divided into 70,000 (ins limit) = 0.7 , 0.7 x 5000 = 3500. 3500 is the right answer, but then why have a deductible if your not going to use it?
Kathleen,
You do not use the deductible in a coinsurance problem. You follow the formula exactly as it is written in the course and on page 27 in the manual.
$125,000 X 80% = $100,000
$70,000/$100,000 = .7
$5000 X .7 = $3500
Please let me know if you have more questions about coinsurance.
Jan
Formula is dead on and like Jan said, you use the deductible when the limit is at the 80% coinsurance or higher. Otherwise, you use the coinsurance formula like you did.