A buyer pays $420,000 for a house. A recent appraisal values the lot alone at $130,000, and a contractor estimates $310,000 to rebuild the structure. The dwelling limit should be based on:
Explanation
Dwelling coverage is written on the cost to rebuild the structure, which is the contractor's $310,000 figure, because the $130,000 lot is not exposed to fire. Insuring to the $420,000 purchase price buys coverage the owner can never collect, since indemnity limits recovery to the actual loss. The $290,000 figure is the price less the lot, which is a real estate calculation rather than a rebuilding cost and understates what construction would take.
This topic, taught in full in the California Property & Casualty Broker-Agent guide. California Property & Casualty Broker-Agent Study Guide — 2026 Edition — PDF + EPUB, $24.99 · 14-day refund →
Practice all 531 questions free — no signup required.
Own the complete California Property & Casualty Broker-Agent guide — PDF + EPUB, $24.99 →
Related questions on this topic
- The recoverable depreciation held back under a replacement cost policy becomes payable once the insured has:
- A century-old building has hand-plastered walls and ornamental tin ceilings. A policy written on a functional replacement cost basis settles a covered loss by paying to:
- Why is the value of the lot left out when an agent sets the amount of insurance on a house?
- A warehouse with a $1,200,000 replacement cost is insured for $810,000 under a 90 percent coinsurance clause. A covered fire causes $150,000 of damage and the policy carries no deductible. The insurer pays:
- A building with a $750,000 replacement cost carries $675,000 of insurance, an 80 percent coinsurance clause and a $2,500 deductible. A covered loss of $95,000 occurs. The insurer pays:
- An apartment building worth $800,000 is insured for $480,000 with an 80 percent coinsurance clause and a $5,000 deductible. A covered fire causes an $80,000 loss. How much does the insurer pay?
Last reviewed: · editorial process