The following question is intended to assist you with a better understanding of the homeowner's policies. Answer it and then click below to check your response.
An insured has an HO-3, no endorsements, with following limits: A - $70,000, B - $7,000, C - $35,000,D- $14,000. The policy has a $500 deductible ($500 deductible for windstorm/hurricane).
What is the amount payable (if any) when:" A windstorm caused extensive damage to the roof of the insured's residence, requiring replacement of a portion. Cost to replace was $5,000. Taking depreciation into account, the actual cash value was $3,000. At the time of the loss, the replacement value of the dwelling was $125,000"?
$______ is payable. $5,000 less $500 deductible = $4,500,but for full replacement cost settlement, the insured needed not less than 80% of the full replacement value as the coverage A limit ($125,000 x 80% = $100,000).
The answer is $3,500 but I thought it was $3,000 (minus deductible)
Can someone thoroughly explain so that I may comprehend a little better please?
Thanks!
Roselin,
This is a coinsurance question. The property is valued at $125,000 and it must be insured to 80% of its' value which is $100,000. Please use the coinsurance formula to answer this question and if you have further questions, please let me know.
Jan
I did. I thought it was the value of the dwelling divided by the value of the property after multiplied by 80% times the loss of $5k minus the deductible of $500. 70,000/100,000 X 5,000 - 500 = 3,000. Please explain. Thank you for your time.
Roselin,
There is a specific order of the operations for a coinsurance question. You have to work coinsurance problems in this order:
1. Value of property X coinsurance percentage ($125,000 X 80% = $100,000)
2. Limit of insurance/answer from step #1 ($70,000/$100,000 = .7
3. Loss X answer from step #2 ($5000 X .7 = $3500)
You do not subtract the deductible in a coinsurance problem.
Jan
Thank you. That was my misunderstanding. I thought you were supposed to subtract it.
Also, I have another question. In the Business Auto Policy section intro it states that 20% of the Florida Exam will involve questions about the Auto sections. Do you have approximate percentages for the rest of the sections?
Thank you.
Roselin,
The percentages for all sections are listed in the front of the state study manual starting on page 2.
Jan
Alright, thank you for your time. I will read it and sorry to trouble you.
No Trouble. I thought it would be easier for see the entire outline.