1, a)Carolyn owns a home with a replacement cost of $400,000 that is insured under a...

a)Carolyn owns a home with a replacement cost of $400,000 that is insured under a Homeowners 3 policy for $260,000. The roof was badly damaged in a severe windstorm, and it will cost $20,000 to repair the roof. The actual cash value of the loss is $15,000. Ignoring any deductible, how much will Carolyn collect from the insurer?

b) Carolyn owns a home with a replacement cost of $400,000 that is insured under a Homeowners 3 policy for $340,000. The roof was badly damaged in a severe windstorm, and it will cost $20,000 to repair the roof. The actual cash value of the loss is $15,000. Ignoring any deductible, how much will Carolyn collect from the insurer?

Solutions

Expert Solution

1.a. We use the loss settlement formula. Carolyn does hot have 80% of the replacement amount. So, she does not receive the full amount

Amount she receives = 260,000/(0.8*400,000) * 20,000 = 16,250

The amount Carolyn collects from the insurer = $16,250

1.b. In this case Carolyn has homeowners insurance that covers 80% replacement amount. So, she receives the full amount

The amount Carolyn collects from the insurer = $20,000

jeff jeffy answered 1 year ago

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