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Ken's home has a replacement value of $200,000. Ken insured the home for $150,000 under an unendorsed Homeowners 3 policy. The roof of Ken's home was damaged by a windstorm. The replacement cost of the damaged roof is $16,000. The actual cash value of the loss is $12,000. How much will Ken receive from his insurer to settle this claim

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Answer: $15,000

Explanation:

Using a Homeowners 3 policy, Ken will get the higher amount out of two amounts which are:

  1. The actual cash value of the damaged area.
  2. An amount calculated as follows:

= (Amount of Insurance cover on home / 80% of Replacement Cost) * Cost of Repair to damaged area.

The actual cash value is $12,000

The second amount is:

= (Amount of Insurance cover on home / 80% of Replacement Cost) * Cost of Repair to damaged area.

= 150,000 / (80% * 200,000) * 16,000

= 0.9375 * 16,000

= $15,000

Ken will receive the higher amount of $15,000.

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