If the insured occupies his principal residence 80% of the year and suffers a flood loss, at which settlement method would the loss be paid?

If the insured occupies his principal residence 80% of the year and suffers a flood loss, at which settlement method would the loss be paid?

• A. 80% coinsurance
• B. Replacement Cost
• C. ACV
• D. Valued Policy

Answer: (B)

The key idea is how coverage level and occupancy affect how a loss is settled. When a dwelling that is the owner’s principal residence is insured to at least 80% of its replacement cost, losses to the dwelling are paid on a replacement-cost basis. This means the insurer reimburses the cost to repair or replace the damaged structure with like kind and quality at current prices, up to the policy limit, with no deduction for depreciation. If the 80% threshold isn’t met, the payout is typically reduced by a coinsurance penalty and may be closer to actual cash value. A valued policy, paying a fixed amount regardless of loss, isn’t the standard arrangement here. Since the insured uses the home as his principal residence for most of the year and meets the 80% coverage guideline, the flood loss would be settled on a replacement-cost basis.

The key idea is how coverage level and occupancy affect how a loss is settled. When a dwelling that is the owner’s principal residence is insured to at least 80% of its replacement cost, losses to the dwelling are paid on a replacement-cost basis. This means the insurer reimburses the cost to repair or replace the damaged structure with like kind and quality at current prices, up to the policy limit, with no deduction for depreciation. If the 80% threshold isn’t met, the payout is typically reduced by a coinsurance penalty and may be closer to actual cash value. A valued policy, paying a fixed amount regardless of loss, isn’t the standard arrangement here. Since the insured uses the home as his principal residence for most of the year and meets the 80% coverage guideline, the flood loss would be settled on a replacement-cost basis.