Chapter 10, Problem 1PA

Summary Introduction

To determine:

The maximum dollar coverage amounts for parts B, C, and D of J homeowner’s policy.

Introduction:

Homeowner’s insurance refers to the property insurance that not only covers the loss on damage of a property but also the assets related with that property. It also covers the loss due to the accidents in property through liability coverage.

Explanation of Solution

HO-3 is a homeowner’s insurance in which the coverage included are,

• Part A is related with dwelling and based on structure replacement value. It is minimum $20,000.
• Part B is related with other structures and provides coverage up to 10% of insurance on house.
• Part C is related with personal property and provides coverage up to 50% of insurance on house.
• Part D is related with loss of use and provides coverage up to 20% of insurance on house.
• Part E is related with personal liability and provides coverage up to $100,000.
• Part F is related with medical payments to others and provides coverage up to $1000 per person.

As J insures her home with HO-3 policy for 100% of its replacement value of $140,000, the calculation of maximum dollar coverage for part B is,

$\text{Amount For Part B}=\text{Insured Amount of Home}\&\#x00D7;10\mathrm{\&\#x0025;}$

Substitute $140,000 for insured amount of home in the above formula.

$\begin{array}{c}\text{Amount For Part B}=\mathrm{\&\#x0024;}140,000\&\#x00D7;10\mathrm{\&\#x0025;}\\ =\mathrm{\&\#x0024;}14,000\end{array}$

The maximum coverage under part B is $14,000.

Calculation of maximum dollar coverage for part C is,

$\text{Amount For Part C}=\text{Insured Amount of Home}\&\#x00D7;50\mathrm{\&\#x0025;}$

Substitute $140,000 for insured amount of home in the above formula.

$\begin{array}{c}\text{Amount For Part C}=\mathrm{\&\#x0024;}140,000\&\#x00D7;50\mathrm{\&\#x0025;}\\ =\mathrm{\&\#x0024;}70,000\end{array}$

The maximum coverage under part C is $70,000.

Calculation of maximum dollar coverage for part D is,

$\text{Amount For Part D}=\text{Insured Amount of Home}\&\#x00D7;20\mathrm{\&\#x0025;}$

Substitute $140,000 for insured amount of home in the above formula.

$\begin{array}{c}\text{Amount For Part D}=\mathrm{\&\#x0024;}140,000\&\#x00D7;20\mathrm{\&\#x0025;}\\ =\mathrm{\&\#x0024;}28,000\end{array}$

The maximum coverage under part D is $28,000.

Conclusion

Thus, the maximum dollar coverage amounts for parts B, C, and D of J homeowner’s policy are $14,000, $70,000 and $28,000 respectively.