Delaney owns a home which would cost $250,000 to rebuild. He has $150,000 in hom
ID: 465067 • Letter: D
Question
Delaney owns a home which would cost $250,000 to rebuild. He has $150,000 in homeowners insurance for his home. The homeowners insurance policy has an 80% coinsurance clause.
1) If the home experiences a $100,000 loss, will there be a loss penalty? If so, how much does Delaney stand to collect from the insurer?
2) What if Delaney had $200,000 in homeowners insurance in the above example?
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Bonnie’s Box Store experiences the following losses over the course of a year:
Jan 14
14,000
Feb 22
12,000
Mar 30
24,000
May 6
30,000
July 12
16,000
Aug 31
18,000
Oct 15
22,000
Nov 30
15,000
Dec 8
17,000
3) If Bonnie has a straight deductible of $10,000, how much will she collect from insurance?
4) If Bonnie has an aggregate deductible of $150,000, how much will she collect from insurance? At which loss/date in the year does insurance begin to pay her?
Jan 14
14,000
Feb 22
12,000
Mar 30
24,000
May 6
30,000
July 12
16,000
Aug 31
18,000
Oct 15
22,000
Nov 30
15,000
Dec 8
17,000
Explanation / Answer
1. Delaney’s home insurance policy has 80% coinsurance clause, which means he should have purchased an insurance coverage of 80% of the cost to rebuild, i.e. 80%*$250000 = $ 200000.
Now Delaney has purchased only 75% (=150000/200000) of the coverage that he should have.
Therefore Delaney stands to collect only 75% of the loss, i.e. $ 75,000
2. If Delaney has purchased $ 200000 coverage, then he would be eligible to collect entire amount of loss upto the value of $ 200000. So in this case, he would collect the full amount, i.e. $ 100,000
3. Straight deductible $ 10000, will be paid by Bonnie on every claim. She will collect the balance amount from insurance. She will collect from insurance $ 78,000
4. Bonnie will collect the entire amount of loss, once she has paid the aggregate deductible amount for the losses over the year. She will collect $ 18,000 from insurance. Insurance will begin to pay her on 30-Nov.
Date Loss Straight Deductible Collect from Insurance 14-Jan 14,000 10,000 4,000 22-Feb 12,000 10,000 2,000 30-Mar 24,000 10,000 14,000 6-May 30,000 10,000 20,000 12-Jul 16,000 10,000 6,000 31-Aug 18,000 10,000 8,000 15-Oct 22,000 10,000 12,000 30-Nov 15,000 10,000 5,000 8-Dec 17,000 10,000 7,000 Total 168,000 90,000 78,000Related Questions
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