3.

Tom and Cindy Jones insured their home and personal property under an unendorsed

Homeowners 3 policy. The home has a current replacement cost of $300,000. The policy

contains the following limits:

Coverage A $240,000 Coverage B 24,000

Coverage C 120,000 Coverage D 72,000

The home was badly damaged in a fire, and the family was forced to live in a motel for

60 days while their home was being rebuilt. Undamaged personal property was stored in

a rental unit during the period of reconstruction. What dollar amount, if any, is payable

under their Homeowners 3 policy for the following (ignore any deductible)?

a. Three bedrooms were totally destroyed in the fire. The replacement cost of restoring

the bedrooms is $80,000. The actual cash value of the loss is $50,000.

Answer:

b. Monthly mortgage payment of $1500 on their home.

Answer:

c. Rental of motel room at $100 daily for 60 days

Answer:
d. Meals eaten in the motel restaurant for 60 days at an average cost of $60 daily (food

costs at home average $20 daily).

Answer:

e. Rent for storing undamaged furniture in a rental unit while the home is being rebuilt,

$200 monthly.

Answer:

4. Megan has her home and personal property insured under an unendorsed Homeowners

3 (special form) policy. Indicate whether each of the following losses is covered. If the

loss is not covered, explain why it is not covered.

a. Megan carelessly spills a can of paint while painting a bedroom. A wall-to-wall carpet

that is part of the bedroom is badly damaged and must be replaced.

b. Water backs up from a clogged drainpipe, floods the basement, and damages some

books stored in a box.

c. Megans house is totally destroyed by a tornado. Her valuable doberman pinscher dog

is killed by the tornado.

d. During a frost warning, smudge pots from a nearby orange grove emit dense smoke

that settles on Megans freshly painted house.

e. Megan is on vacation, and a thief breaks into her hotel room and steals a suitcase

containing jewelry, money, clothes, and an airline ticket.

f. Megans son is playing baseball in the yard. A line drive shatters the living room

window.

g. A garbage truck accidentally backs into the garage door and damages it.

h. Defective wiring causes a fire in the attic. Damage to the house is extensive. Megan is

forced to move into a furnished apartment for three months while the house is being

rebuilt.

i. Megans son, age 20, is attending college but is home for Christmas. A stereo set is

stolen from his dormitory room during his absence.

j. During the winter, heavy snow damages part of the front lawn, and the sod must be

replaced.

k. During a windstorm, an elm tree in Megans yard is blown over.

l. The home is badly damaged in a severe earthquake. As a result of the earthquake, the

front lawn has a 3-foot crack and is now uneven.

m. An icemaker in the refrigerator breaks and water seeps into the flooring and carpets,

causing considerable damage to the dwelling.

5. James has his home and personal property insured under a Homeowners 3 (special

form) policy. The dwelling is insured for $120,000. The replacement cost of the home is
$200,000. Indicate the extent to which each of the following losses would be covered

under Jamess Homeowners 3 policy. (Ignore the deductible.)

a. Lightning strikes the roof of the house and severely damages it. The actual cash value

of the damaged roof is $10,000, and it will cost $16,000 to replace the damaged portion.

b. A living room window is broken in a hailstorm. The drapes are water stained and must

be replaced. The actual cash value of the damaged drapes is $400. Replacement cost is

$600.

c. The water heater explodes and damages some household contents. The actual cash

value of the damaged property is $2000, and the cost of replacing the property is $3200.

7. Paul has his home and its contents insured under a Homeowners 3 (special form)

policy. He carries $160,000 of insurance on the home, which has a replacement cost of

$200,000. Explain the extent to which each of the following losses is covered. (Ignore the

deductible.) If Pauls policy does not cover the loss or inadequately covers any of these

losses, show how full coverage can be obtained.

a. Pauls stamp collection, which is valued at $5000, is stolen from his home.

b. Teenage vandals break into Pauls home and destroy a painting that has a market value

of $1000.

c. A motorboat stored in the driveway of Pauls home is badly damaged during a

hailstorm. The actual cash value of the damaged portion is $8000, and its replacement

cost is $20,000.