Bill's home was destroyed by a tornado, with an estimated rebuild cost of $235,000. His homeowners policy has a coverage limit of $225,000 and a $1,700 deductible. Considering that the loss exceeds the policy limit, what is the maximum amount Bill's insurer will pay for the damage to his home?

Rationale

$223,300 is the maximum amount Bill's insurer will pay for the damage to his home.

To calculate the maximum payment from Bill's insurer, we first apply the deductible of $1,700 to the policy coverage limit of $225,000. Since the total loss exceeds the coverage limit, the insurer will pay up to that limit minus the deductible.

A ($233,300) YOUR ANSWER

This amount incorrectly adds the deductible to the policy limit. The correct calculation requires subtracting the deductible from the policy limit, not adding it, leading to a misunderstanding of how deductibles function within insurance policies.

B ($235,000) YOUR ANSWER

This choice represents the total estimated rebuild cost, which exceeds the policy limit. Insurers are not obligated to pay more than the coverage limit of the policy, thus making this option invalid, as the payment cannot exceed $225,000.

C ($223,300) CORRECT

This is the correct answer. The insurer will pay the coverage limit of $225,000 minus the $1,700 deductible, resulting in a payment of $223,300. This reflects the actual amount Bill will receive from his insurer given the circumstances.

D ($225,000) YOUR ANSWER

While this choice reflects the policy limit, it does not account for the deductible. The insurer will deduct the $1,700 from this limit, resulting in a lower payment amount than the full coverage limit.

Conclusion

In summary, the maximum amount Bill's insurer will effectively pay for the damage to his home, after accounting for the deductible, is $223,300. This figure is derived by subtracting the deductible from the policy coverage limit, highlighting the importance of understanding how policy limits and deductibles work in homeowners insurance claims.

Bill's home was destroyed by a tornado, with an estimated rebuild cost of $235,000. His homeowners policy has a coverage limit of $225,000 and a $1,700 deductible. Considering that the loss exceeds the policy limit, what is the maximum amount Bill's insurer will pay for the damage to his home?

$223,300 is the maximum amount Bill's insurer will pay for the damage to his home.

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