Answered

A dwelling with a replacement cost of $150,000 was insured under a Homeowners 3 policy for $100,000 at the time the roof was destroyed by a windstorm. The actual cash value of the loss was $9,000, but it will cost $12,000 to replace the roof. Ignoring any deductible, what will the insurer pay to settle this loss?

Answer :

Answer:

The correct answer is $10,000.

Explanation:

According to the scenario, the given data are as follows:

Replacement cost = $150,000

Insurance value = $100,000

Replacement value = $12,000

According to the policy, 80% replacement cost can be considered.

So, we can calculate the amount that insurer pay by using following formula:

Amount insurer pay = Replacement value × Insurance value ÷ 80% of replacement value

= $12,000 × $100,000 ÷ $120,000

= $10,000.

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