Jerry Carter\'s home is currently valued, on a replacement cost basis, at $494,0

Question

Jerry Carter's home is currently valued, on a replacement cost basis, at $494,000. When he last checked his policy, his home was insured for $359,227 and he did not have an inflation guard endorsement. If he has a $31,702 claim due to a kitchen fire, how much will his homeowner's insurance policy pay? How much would be paid if his home were totally destroyed? In order to obtain full replacement coverage, how much insurance should Jerry carry on his house?

Question - If he has a $31,702 claim due to a kitchen fire, his homeowner's policy would pay ?$ (Round to the nearest dollar.)

Explanation / Answer

If Jerry's home was totally destroyed, he would get payment of $359,227 since it is not revalued based on inflation.

Due to kitchen fire, the claim based on replacement cost is $31,702. This is $31,702 / $494,000 = 0.064 proportion of total replacement cost of home.

Amount home owner policy would pay is: 0.064 * $359,227 = $$22,991

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