Question

Last year, Brett and Amber Walsh bought a home with a dwelling replacement value of $160,000 and insured it (via an HO-5 policy) for $141,000. The policy reimburses for actual cash value and has a $250 deductible, standard limits for coverage C items, and no scheduled property. Recently, burglars broke into the house and stole a 4-year-old television set with a current replacement value of $1,100 and an estimated useful life of 10 years. They also took jewelry valued at $1,400 and silver flatware valued at $3,700.

Assuming a 50% coverage C limit, calculate how much the Walshes would receive if they filed a claim for the stolen items. Do not round intermediate calculations. Round the answer to two decimal places.

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What advice would you give the Walshes about their homeowner's coverage?

Answer 1

Answer :1

An HO-5 provides comprehensive coverage on the real and personal property. Coverage C refers to personal property and the policy states that the coverage is actual cash value with a $250 deductible. Standard limits provide for 50% of total coverage limit for personal property, which in this case is 50% * $141,000 or $70,500. Remember that homeowner’s policies usually specify limits for certain types of personal property included under the coverage C category. These coverage limits are within the total dollar amount of coverage C and in no way act to increase that total. Loss from jewelry theft is limited to $1,000, and payment for theft of silverware, goldware, and pewterware has a $2,500 limit.

The items lost and their value are:

Four year old television $1833 replacement value less 4/10 or $733 yields actual cash value of $1100

Jewelry$1,4000, limited to $1,000

Silver flatware$3, 700, limited to $2,500

Total Actual Cash Value, after applying limits $4,600

The deductible amount is $250

Amount to be received from insurance $4350

Answer : 2

Probability of a second robbery is very low. With the current insurance, the have a total loss of $6933 in replacement cost. Their insurance recovery is $4350 or about 63% of loss. To overcome this deficiency, you can either add the personal property floater (PPF) as an endorsement to your homeowner’s policy or take out a separate floater policy. The PPF provideseither blanket or scheduled coverage of items that are not covered adequately in a standard homeowner’s policy. The cost of the PPF is not given, but to cover the entire potential loss, it could be a relatively large amount.