87. 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?
Answer: C
$223,300
Bill's insurer will pay a maximum of $223,300 for the damage to his home after accounting for the policy limit and the deductible. The total rebuild cost of $235,000 exceeds his policy limit, and the deductible further reduces the payout.
A) $233,300
This option incorrectly calculates the payout by failing to properly account for the deductible. While it represents a number close to the total loss, it does not reflect the policy limit and deductible applied to the claim.
B) $235,000
This option suggests that the insurer would cover the full estimated rebuild cost of $235,000. However, since the homeowners policy has a limit of $225,000, this option is incorrect as it disregards the policy's maximum payout.
C) $223,300
This is the correct answer, as it accurately reflects the payout after the deductible is applied. The insurer will pay the policy limit of $225,000 minus the deductible of $1,700, resulting in a maximum payout of $223,300.
D) $225,000
This option indicates that the insurer would pay the entire policy limit. However, it fails to account for the deductible, which must be subtracted from the payout, making this option incorrect.
Conclusion
The correct answer, $223,300, is derived from the policy limit of $225,000 minus the $1,700 deductible, which aligns with the terms of Bill's homeowners insurance. All other options either miscalculate the deduction or exceed the policy's coverage limit, demonstrating a misunderstanding of insurance claim processing.