Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara

Exercise 1

Pedro owns a sixplex apartment building and lives in one unit. The building is insured under the Dwelling Property 1 (basic form) policy for $320,000. The replacement cost of the building is $400,000. Explain to what extent, if any, Pedro will recover for the following losses:
a. A fire occurs in one of the apartments because of defective wiring. The actual cash value of the damage is $20,000, and the replacement cost is $24,000.
b. The tenants move out because the apartment is unfit for normal living. It will take three months to restore the apartment to its former condition. The apartment is normally rented for $900 monthly.
c. A tenant's personal property is damaged in the fire. The actual cash value of the damaged property is $5000, and its replacement cost is $7000.