Property Insurance FundamentalsQuestion 220 of 474
A dwelling with a $300,000 replacement cost is insured for $240,000, meeting the form's 80% requirement. Fire damages one wing: $18,000 to replace, $12,000 depreciated, deductible $1,000. The insurer pays:
a.$11,000
b.$14,400
c.$18,000
d.$17,000
Explanation
Because the amount of insurance is at least 80% of full replacement cost, the form settles a partial building loss at replacement cost, so the insurer pays the $18,000 repair cost less the $1,000 deductible. The $11,000 answer settles the damaged portion at its depreciated $12,000 value, which is what applies when that 80% test is failed. Taking 80% of the loss is no part of the settlement.
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