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

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?

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Expert Solution

Carolyn owns a home that is insured under a Homeowners 3 policy. As roof is a necessary structure of a home therefore it comes under coverage A which covers dwelling place and any necessary structure related to dwelling place.

Under this insurance policy Carolyn will get higher amount of two of the followings –

Actual cash value of the damaged part of the property

Or

(Amount of insurance cover / 80% of replacement cost) * Cost of repair

Where,

Actual cash value of the damaged part of the property = $15,000

Or

(Amount of insurance cover = $340,000

Replacement cost = $400,000

Cost of repair = $20,000

Therefore

Carolyn will collect higher amount of the followings from the insurer

Actual cash value of the damaged part of the property = $15,000

Or

($340,000/ 80% * $400,000) * $20,000

= $21,250

Therefore Carolyn will collect $21,250 from the insurer.

jeff jeffy answered 2 years ago
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