The replacement cost of a home covered under the HO-2 policy is $100,000.Assume the home is insured for $50,000 and a $10,000 loss occurs (replacement cost). Also assume depreciation is set at 10% and a $500 deductible applies. How much will the insured recover if the damage is repaired?

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Quizplus · Accepted Answer

The insured is underinsured for this policy. The policy only covers half of the replacement cost. To find out how much the insured will recover, first, the actual cash value needs to be calculated by subtracting the depreciation from the replacement cost: $100,000 - $10,000 x 10% = $9,000. Then, subtract the deductible ($500) to get the amount the insurance company will pay: $9,000 - $500 = $8,500.

The Replacement Cost of a Home Covered Under the HO-2