Question

a. Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If a family had $3,200 of jewelry and $3,600 of silverware stolen, what amount of the claim would not be covered by insurance?

b. What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of five years.

c. What amount would it cost an insurance company to replace a family’s personal property that originally cost $18,000? The replacement costs for the items have increased 10 percent.

Answer 1

In case of jewelry and precious item there is generally an upper cap and the insurance company will not pay more than the amount specified in the policy for any given piece of jewelry or other valuable item.

Since in the question the stolen value is more than the value the insurance policy covers so, the insurance policy will pay the insurance coverage limit of $1,000 for jewelry and $2,500 for silverware.

Particulars	Covered Amount	Stolen Value	Amount not covered by Insurance (Stolen Value - Covered Amount )
Jewelry	1000	3200	2200
Silverware	2500	3600	1100
		Total	3300

Amount not covered by Insurance is $3300

b. Insurance payment = Replacement cost - Depreciation
Depreciation is calculated by Straight line method

Depreciation = Present Value/ Useful Life = (1000/5) = $200 per year

So, Depreciation for 2 years = $200*2= $400
Insurance Payment = $1000 - $200*2 = $600

c. Replacement cost = Original cost × (1 + percentage increase)

Original Cost = $18000, percentage increase = 10%
Replacement cost = $18,000 × (1 + 0.10)
Replacement cost = $18000*1.1 = $19800