I Need Help!! ASAP!!! QUESTION!!!

[mamamunckins]

Frank's house has a replacement cost of $250,000. His HO-3 policy has a Coverage A limit of $180,000 and a $500 deductible. A fire causes a loss of $10,000 replacement cost and $8,000 actual cash value. What is the most Frank can collect for his loss?

A) $8,500.00 B) $9,000.00 C) $7,200.00 D) $10,000.00

I don't want to answer, I just need help figuring our how to plug in the numbers, and by how and explain why they are plugged in that way. I am taking my insurance test soon and I have got to figure this out!

 

[AgentProvocateur]

Start with this: $180,000 is what percentage of $250,000?

 

[djs]

Math is pretty simple
180000/250000=72% coverage, less than 80%
10000 loss * 72% = $7200
$7200 - $500 deductible = $6700.

Answer is 'none of the above'!

There are some variables, such as if the policy is replacement cost (H0-3, should be), the work gets done, or it will get paid at ACV, and if the deductible can be recouped by someone else at fault for the fire. If so, then he would cap at $7200.

Of course, all of this assumes it is structural damage, not personal property damage and to the main house, not to a seperate structure.

Even with this minor loss, he would have been far better off with a $1000 deductible and proper coverage.

Dan

 

[Josh]

Math is pretty simple
180000/250000=72% coverage, less than 80%
10000 loss * 72% = $7200
$7200 - $500 deductible = $6700.

Answer is 'none of the above'!

There are some variables, such as if the policy is replacement cost (H0-3, should be), the work gets done, or it will get paid at ACV, and if the deductible can be recouped by someone else at fault for the fire. If so, then he would cap at $7200.

Of course, all of this assumes it is structural damage, not personal property damage and to the main house, not to a seperate structure.

Even with this minor loss, he would have been far better off with a $1000 deductible and proper coverage.

Dan

Don't you love a poorly worded question? They apparently think there is a way to recover that deductible. Maybe they are thinking it may have been met on another component of the same claim? Probably overthinking it and they just botched the question?

 

[AgentProvocateur]

I beg to differ:

$250,000 = 100% Replacement cost of the building

80% of $250,000 = $200,000

$180,000 (Amount of coverage you have) / $200,000 (Amount of coverage you need to satisfy 80% coinsurance clause) = .90

$10,000 loss based on RC X .90 = $9,000

$9,000 less $500 deductible = $8,500

The correct answer is A. $8,500.

Because the ACV loss is $8,000, the insured would never get less than $7,500 ($8,000 minus the $500 deductible), if the amount of coverage on the building was less than $180,000, or if 100% of RC for the building was higher.

Yes, this is how I spend my Saturday night.

 

[djs]

I beg to differ with your difference, but there may be a state thing here.

Here, you work with the reconstruction cost, not 80% of the reconstruction cost, to figure the co-insurance amount. This is why you ALWAYS want to be at least 80% insured.

I'm willing to concede this will likely change based on where you are.

Dan

 

[VolAgent]

Man I love this thread. I always understood it the way djs stated, but when I look at the licensing study material, they are determining it using the method AgentProvcateur posted. Now I understand why I was always getting confused.

 

[Norwayguy]

I am so glad I never got my P&C license...I sell life insurance are you dead yet is as complicated as it gets.

 

[VolAgent]

I am so glad I never got my P&C license...I sell life insurance are you dead yet is as complicated as it gets.

Yeah, but how did you get dead?

 

[Norwayguy]

Yeah, but how did you get dead?

Boredom from inland marine insurance