Carmen Viers lost everything to a fire and has spent the last eight weeks living
ID: 2795377 • Letter: C
Question
Carmen Viers lost everything to a fire and has spent the last eight weeks living in a motel room at a cost of $6,525. Her dwelling, which was destroyed as a result of a lightning strike, was insured with an HO-2 policy for $435, 278. Prior to the loss, her home was valued at $480,000 her detached garage and poolhouse were valued at $52,073, and her personal property had an actual cash value of $188,032. To make matters worse she sustained $10,000 in injuries while trying, unsuccessfully, to save her three Greyhound dogs valued at $6,000 each. How much of her total losses and expenses will be reimbursed if she has a $1,000 deductible?
Question- The amount of total losses and expenses she will be reimbursed if she has a $1,000 deductible is ?$ (Round to the nearest dollar.)
Explanation / Answer
Total replacement cost = Replacement cost of dwelling & detached structures + Actual Cash value of personal property
= $480,000 + $52,073 + $188,032 = $720,105
According to 80% rule, the home insurance policy must have coverage of atleast 80% of replacement cost amount.
Required insurance cover = 80% of $720,105 = $576,084
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Let's list down the damages/losses under various coverages on home insurance form
Coverage A: Dwelling - $480,000
Coverage B: Other structures on property like Detached garage and poolhoude - $52,073
Coverage C: Personal Property = $188,032
Coverage D: Loss of use = $6525
Coverage E: Personal liability like pet ownership = $18000
Coverage F: Medical bills = $10,000
Total loss incurred = $480,000 + $52,073 + $188,032 + $6525 + $18,000 + $10,000 = $754,630
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The insurance cover is only for $435,278 which means if 80% rule had been followed, Carmen would receive $435,278 against losses. But now the amount she'll receive against claims will be
Pay out = [(Value of current coverage/ 80% of Total Replacement cost) * (lesser of Amount of damages and Current Coverage)] - Deductible
= [($435,278/$576,084) * 435,278] - $1000
= $327,887.69