Chapter 10, Problem 3FPC

Summary Introduction

Case summary:

N and E basement is filled with water, during the last rain all the rain water went to their basement and gets collected in that. Now, all the furniture in that basement is ruined. N called their landlady to complain. While E was thinking about the situation, she remembered that, at the time of renting the home, the landlady told him that the insurance only cover structure of the building and not the furniture of it and they also took renter’s insurance after that. N thought that renter’s insurance will cover the damage. E called the agent and they find out that their insurance covers the damage after paying deductible. They paid $300 for that insurance. Generally, 6 out of 10 renters don’t have renter’s insurance and much of them don’t even know about the renters insurance. One should take the policy that should cover personal belongings and living expenses if one is displaced by fire.

Character in this case: N, K and E.

Adequate information:
Insurance cost is $300.
Purchase price of sofa is $1,000.
Current price of sofa is $500.

To determine:

Difference between cash and replacement value.