Jamil and Vicky purchased a $200,000 homeowners policy for their house in 1988.They have renewed the policy each year since and have replacement coverage.This policy has a $1,000 deductible.Their home now has a replacement value of $275,000.Last week they came home to find a small fire which caused the following damages: How much will the insurance company pay for the $50,000 loss to their home?

Question

Quizplus · Accepted Answer

The insurance company will pay for the loss up to the limit of the policy, which is $200,000 (the amount they purchased the policy for in 1988). Since the replacement value of the home now is $275,000, they are underinsured and will not receive the full replacement value. The loss is $50,000, so the insurance company will pay $57,000 ($50,000 + 10% for replacement cost coverage), and the deductible of $1,000 will be subtracted from this amount, leaving a final payout of $56,000. Therefore, option C is the correct answer.

Jamil and Vicky Purchased a $200,000 Homeowners Policy for Their