Joe owns a house on which he carries a $400,000 HO-2 policy.The replacement cost of the house is $600,000.A fire loss occurs that has a replacement cost of $10,000. How much can Joe collect under his HO-2 policy?

Question

Quizplus · Accepted Answer

The HO-2 policy typically requires the insured to carry coverage of at least 80% of the replacement cost to receive full replacement cost coverage. Joe's coverage is $400,000, which is less than 80% of the $600,000 replacement cost. Therefore, the loss payment is calculated using the formula: (Insurance Carried / Insurance Required) x Loss Amount. Here, ($400,000 / $480,000) x $10,000 = $8,333.33, rounded to $8,333.

Joe Owns a House on Which He Carries a $400,000