Question

Melanie's $300,000 home suffers $90,000 in damage from a fire. The adjuster finds the home's value since 2008 has depreciated 25%, making the ACV loss $67,500. Although Melanie's policy covers repairs at their replacement cost, she receives $67,500 at the time of loss. Repairs to her home end up totaling $79,500. How much, if any, further indemnification may Melanie receive from the loss?

A. $10,500
B. $12,000
C. $22,500
D. $0

Answer 1

Melanie is entitled to receive an additional $12,000 from her insurance company to cover the total repair costs since her policy covers the full replacement cost.

Step-by-step explanation:

The question is about determining the amount of further indemnification Melanie may receive from her insurance policy given the circumstances of her home's damage and the insurance payout. Melanie's home was originally valued at $300,000 but has depreciated by 25%, resulting in an actual cash value (ACV) of $225,000. The fire caused $90,000 in damage, but the adjuster calculated the loss at $67,500 based on the depreciated value.

Since the total repair costs amounted to $79,500 and Melanie has already been paid $67,500, to get to the total replacement cost, she is entitled to the difference, which is $79,500 - $67,500 = $12,000. Therefore, the correct answer to how much further indemnification Melanie may receive is:

B. $12,000