PERSONAL FINANCE
PERSONAL FINANCE
8th Edition
ISBN: 9780134730981
Author: KEOWN
Publisher: PEARSON
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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.

Expert Solution & Answer
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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,

Amount For Part B=Insured Amount of Home×10%

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

Amount For Part B=$140,000×10%=$14,000

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

Calculation of maximum dollar coverage for part C is,

Amount For Part C=Insured Amount of Home×50%

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

Amount For Part C=$140,000×50%=$70,000

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

Calculation of maximum dollar coverage for part D is,

Amount For Part D=Insured Amount of Home×20%

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

Amount For Part D=$140,000×20%=$28,000

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.

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