Jerry Carter\'s home is currently valued, on a replacement cost basis, at $368,0

Question

Jerry Carter's home is currently valued, on a replacement cost basis, at $368,000. When he last checked his policy, his home was insured for $288,749 and he did not have an inflation guard endorsement. If he has a $27,422 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?

Question - If he has a $27,422 claim due to a kitchen fire, his homeowner's policy would pay $______________(Round to the nearest dollar.)

Explanation / Answer

Minimum amount for home insurance (as per the 80% rule):
= 80% * replacement cost of the house
= 80% * $368,000
= $294,400

Loss' compensation = value of loss * amount insured / 80% of replacement cost
= 27,422 * 288,749 / 294,400
= $ 26,895.64

If Jerry's home is destroyed, he will be entitled for $288,749
Question - If he has a $27,422 claim due to a kitchen fire, his homeowner's policy would pay $ 26,896.

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