Question

An owner insures a home for $400,000. Replacement cost is $600,000. A co-insurance clause requires coverage of 90% of the replacement costs to avoid penalties. Fire destroys the house. What can the owner recover from the insurer?

Answer 1

$446,667

Step-by-step explanation:

Given the Recovery with Co-Insurance Clauses

Formula: Recovery = Damage Claim x (% Replacement Cost Covered / Minimum coverage requirement)

Therefore:

Replacement Cost covered is = $400,000 by the home home owner

Hence, slotting the figure into the formula, we have

Claim recovery = $600,000 x (67% cost covered ÷ 90% required) = $446,667

Therefore the final answer or that the owner will recover from the insurer is $446,667