Dwelling Policy (DP)Question 320 of 531
A dwelling costing $250,000 to replace is insured on a broad form for $150,000, under a loss settlement condition asking for 80%. A $40,000 building loss is settled at:
a.$32,000
b.$40,000
c.$24,000
d.$30,000
Explanation
The condition asks for insurance of at least 80% of $250,000, which is $200,000. Only $150,000 was carried, so the replacement cost settlement is cut to the ratio of $150,000 to $200,000, or 75%, and 75% of the $40,000 loss is $30,000. The insured absorbs the difference for carrying less than the form asks, with actual cash value available as the alternative measure.
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