Question

2. Sufficient Dwelling Coverage? Colton Gentry of Lancaster, California, has owned his home for ten years. When he purchased it for $178,000, Colton bought a $160,000 homeowner's insurance policy. He still owns that policy, even though the replacement cost of the home is now $300,000.

(a) If Colton suffered a $20,000 fire loss to the home, what percentage and dollar amount of the loss would be covered by his policy?

(b) How much insurance on the home should Colton carry now to be fully reimbursed for a fire loss?

Answer 1

a) Proportion of the house insured = Insurance amount / price of the home * 100

= 160000 /178000 * 100

= 89.89%

Percentage amount covered by the policy = Proportion of the house insured

= 89.89%

Dollar amount covered by the policy = 20000 * 89.89%

= 17,978

b) Amount of nsurance on the home should Colton carry now to be fully reimbursed for a fire loss = current value of the home

= $300,000