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Suppose that at the time of a $40,000 loss, your home has a replacement value of...

Suppose that at the time of a $40,000 loss, your home has a replacement value of $200,000. And suppose you have $140,000 worth of insurance on it. Calculate the amount that you would receive from the insurer. (remember the 80% co-insurance requirement for full coverage).

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Expert Solution

Solution:

According to 80% rule,Minimum coverage required is:

=replacement value*80%

=$200,000*80%

=$160,000

In the given case,worth of insurance is less than the minimum coverage required,hence insurance company will only pay for the propotion of the minimum coverage represented by the actual amount of insurance purchased.Thus amount that will received from insurance company is:

=($140,000/$160,000)*$40,000

=$35,000

jeff jeffy answered 2 years ago
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