Case 3: Larry’s house is valued at $500,000. He has a $200,000 homeowners’ insurance policy which...

Case 3: Larry’s house is valued at $500,000. He has a $200,000 homeowners’ insurance policy which has a 90% coinsurance. His house is damaged during a windstorm. His loss is $300,000 on a replacement cost basis and $150,000 on an ACV basis.

Should Larry file insurance claim on replacement cost basis or ACV basis? Calculate both values.

Solutions

Expert Solution

Given information,

value of House = $500000

Homeowner's insurance policy = $200000

coinsurance = 90%

loss of damage by Replacement cost basis = $300000

loss of damage by ACV basis = $150000

value of claim on replacement cost basis = 200000/90% of 500000 * 300000 = $133333.33
value of Claim on ACV basis = 200000/90% of 500000 * 150000 = $66666.67

conclusion,

Larry should file an insurance claim for the option of Replacement Basis as, it particularly subtracts deductible amount whereas, in ACV basis method, it considered depreciation deduction too.

jeff jeffy answered 1 year ago

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