Final answer:
In case of a $100,000 loss due to fire, Brandon would be compensated approximately $77,777.78 by the insurance company, as he has a replacement cost homeowners policy and is underinsured, carrying only $350,000 of insurance for a home valued at $450,000.
Step-by-step explanation:
Brandon has a replacement cost homeowners policy with a home value of $450,000, but he only carries $350,000 worth of insurance. In the event of a $100,000 loss due to fire, we need to calculate how much the insurance company would owe him, excluding any deductibles. This involves understanding how insurance coverage percentages impact the claim payout. Since Brandon is insured for less than the full value of the home (also known as being underinsured), the insurance company may apply a coinsurance clause.
To determine how much Brandon would receive, we can use a formula that considers the ratio of the amount of insurance he purchased ($350,000) to the amount he should have carried ($450,000), which is 350,000/450,000, or 7/9. Multiplying the loss amount of $100,000 by this ratio yields the payout amount.
The calculation is as follows:
Insurance Payout = Loss Amount x (Amount of Insurance Carried / Value of Home)
Insurance Payout = $100,000 x (7/9)
Therefore, Brandon would be compensated:
Insurance Payout = $77,777.78 (Approximately)