Question

If a homeowner's insurance policy provides coverage for less than 80 percent of the full replacement cost of the dwelling, then the loss of the residence will be settled for:

A) the market value of the property less the land value
B) the lowest repair bid
C) either the actual cash value or the prorated repair cost
D) the total replacement cost.

Answer 1

If the insurance provides coverage for less than 80 percent of the dwelling's replacement cost, the loss is typically settled for either the actual cash value or the prorated repair cost, depending on the policy's terms.

Step-by-step explanation:

If a homeowner's insurance policy provides coverage for less than 80 percent of the full replacement cost of the dwelling, then the loss will be settled for either the actual cash value or the prorated repair cost.

This is due to a principle usually referred to as coinsurance, which is a concept where the policyholder pays a percentage of the loss, and the insurance company pays the remaining cost. The actual amount of reimbursement depends on the terms of the homeowner's insurance policy. It's essential for homeowners to insure their property for the right amount to avoid such situations.