Question

In: Finance

Jerry​ Carter's home is currently​ valued, on a replacement cost​ basis, at ​$244,000. When he last...

Jerry​ Carter's home is currently​ valued, on a replacement cost​ basis, at ​$244,000. When he last checked his​ policy, his home was insured for $182,354 and he did not have an inflation guard endorsement. If he has a $17,230 claim due to a kitchen​ fire, how much will his​ homeowner's insurance policy​ pay? How much would be paid if his home were totally​ destroyed? In order to obtain full replacement​ coverage, how much insurance should Jerry carry on his​ house?

If he has a $17,230 claim due to a kitchen​ fire, his​ homeowner's policy would pay $______. ​(Round to the nearest​ dollar.)

Solutions

Expert Solution

Minimum Amount of House Insurance coverage required according to rules as recommended by most insurance companies is 80%

80%×replacement cost of house = 244,000 × 80%= 195200

Minimum amount of Insurance to be bought was 195200 to get full replacement value for any damages.

But actual home insured is ( $ 182354 ) is less than the minimum required amount, reimbursement shall be on a proportionate basis

Amount of reimbursement = value of loss × value of insurance brought /minimum requirements

= 17230×182354/195200= 16096.10


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