A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss?

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Business

Salma Morrison

17 June, 22:25

A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss?

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Danica Ewing · Answer 1

The correct answer is $10,000.

Explanation:

According to the scenario, the given data are as follows:

Replacement cost = $150,000

Insurance value = $100,000

Replacement value = $12,000

According to the policy, 80% replacement cost can be considered.

So, we can calculate the amount that insurer pay by using following formula:

Amount insurer pay = Replacement value * Insurance value : 80% of replacement value

= $12,000 * $100,000 : $120,000

= $10,000.