Question

Assume the Finch family of Charlotte, North Carolina, purchased their home in 1966 for $50,000. Since then, comparable homes in their neighborhood have most recently sold for $150,000. The cost to replace the home would be $169,500. It is estimated that the house is one third (1/3) depreciated. The Finch’s have a $135,600 (Coverage A) Homeowners policy in force, similar to the policy shown in the Appendix. Answer the following questions as if each question were a separate event. (Assume no deductible)

1) How much will the Finch’s collect for a total covered fire loss under coverage A?

2) How much will be collected for a $20,000 partial loss under coverage A?

3) What would be your answer to questions 1 above if the Finch’s had only $101,700 of insurance for Coverage A?

4) What would be your answers to question 2 above if the Finch’s had only $101,700 of insurance for Coverage A?

Answer 1

cost to replace the home = $169,500

WDV of house after depreciation = $169,5002/3

=$113,000

collection from insurance coverage =  insurance for Coverage A and  total covered fire loss under cover A,whichever is lower.

Ans.1

(Coverage A) Homeowners policy = $135,600

WDV of house after depreciation = $113,000

the Finch will  collect $113,000 for a total covered fire loss under coverage A.

Ans.2

Partial loss = $20,000

(Coverage A) Homeowners policy = $135,600

the Finch will  collect $20,000 for a total covered fire loss under coverage A.

Ans.3

insurance for Coverage A = $101,700

total covered fire loss under coverage A = $113,000

the Finch will  collect $101,700 for a total covered fire loss under coverage A.

Ans.4

insurance for Coverage A = $101,700

Partial loss = $20,000

collection from insurance cover =($101,700/$113,000)$20,000

=$18,000