Question

Lori lives in an area in Montreal that seems to flood around this time every year. It is getting frustrating, as she does the cleanup herself so as not to deal with the insurance company. She is concerned that if she declares the small amount of water damage each year, her insurance company will no longer insure her, just as they have done with her neighbours after they made their claims. This year, however, the water damage was excessive, and she had no choice but to file an insurance claim. She is however confused about two home value concepts regarding home insurance, one being market value and the other replacement cost. You explain that market value is the price she would get for her home on the real estate market, which includes the land. The replacement cost covers the cost of rebuilding and does not include land. Lori knows that she could sell her home for $750,000 as she just received an offer to buy her place, even though it was not listed for sale. The cost, however, to rebuild would be $500,000. Lori has a replacement cost policy and is not fully covered as she has not maintained the 80% coverage amount on the insurance policy. Her home has a replacement cost of $500,000, but her insurance coverage totals $375,000. The water damages total $125,000 to her home.
a) How much will the insurance company pay for the damage?

Answer 1

The insurance company will pay $125,000 for the water damage. This is the total amount of the damages caused to her home.