OLT-Breakroom: Unit 6 question

Property is valued at $125,000 but insured at $100,000 with a $5,000 deductible and Debris Removal coverage of $7,000. There was a total loss. Why does the insured receive $107,000 instead of $102,000? If the deductible is is taken from the LOSS and the total loss was $100,000? The correct answer shows as $107,000 where deductible was not taken out.

Grisel,

The loss to the insured was $125,000. You take the deductible from the $125,000 which means, after the deductible, the insurer would pay $120,000 for the loss. But the insured only has $100,000 worth of coverage so they receive $100,000 plus debris removal. The insured is out-of-pocket $25,000 for being underinsured.

Jan

That makes sense. Thank you!

Jan,

So deductibles are always substracted from the loss?..not from the amount to be paid? Does this apply to all deductibles as a general rule?

Allenda,

Yes, deductibles are always subtracted from the loss. If you are involved in an at-fault accident resulting in $3000 damages to your vehicle. Assuming you have a PAP with $500 deductible, yoiu subtract the $500 from the $3000 loss. The same is true with property loss.

Jan

2-20 Conversion Course

Unit 6 question