Question

Mean Joe Green's house caught fire. Repair costs to the house, appliances, and fixtures totaled $52,500. His Coverage A limits were $150,000. At the time of the fire, the replacement cost value of his home was $210,000, and he had an 80% coinsurance requirement. If Joe's policy had a $1,000 deductible, what would the policy pay?

(A) $51,500.00

(B) $52,500.00

(C) $46,882.50

(D) $45,989.50

Answer 1

The policy will pay $51,500 for the repair costs.

Step-by-step explanation:

To determine what the policy will pay, we first need to calculate how much insurance Joe had at the time of the fire. The replacement cost value of his home was $210,000, and he had an 80% coinsurance requirement. This means that Joe should have had insurance coverage of 80% of the replacement cost value, which is 0.8 * $210,000 = $168,000.

Since Joe's coverage A limits were $150,000, the policy will pay for the lesser of the repair costs or the coverage limits. In this case, the repair costs are $52,500, which is less than the coverage limits. Therefore, the policy will pay the full repair costs.

However, we need to account for the deductible. Joe's policy had a $1,000 deductible, which means that he is responsible for the first $1,000 of the repair costs. Therefore, the policy will pay $52,500 - $1,000 = $51,500.