Question

7. Reimbursement on property damage Aa Aa Shen's Replacement Cost Coverage Shen recently purchased a $144,000 broad form H0-2 policy with no deductible. A year later, his roof is damage vandalism and he suffers a loss of $115,200 If the replacement value of Shen's house is $240,000 and the insurance policy includes a replacement cost requirement of 80%, he will receive a reimbursement of $

Answer 1

According to the 80% rule, the minimum coverage that Shen should have purchased for his property is $192,000 ($240,000 x 80%). If that threshold had been met, any and all partial damages to James's home would be paid by the insurance company. But since Shen did not buy the minimum amount of coverage, the insurance company would only pay for the proportion of the minimum coverage represented by the actual amount of insurance purchased ($144,000/$192,000), which amounts to 75% of the damages. Therefore, the insurance company would pay out (reimburse) $86,400 ($115200*75%) and, unfortunately, Shen would have to pay the remaining $28,800 herself.