Your client has a $200,000 Homeowners Comprehensive policy. Due to a fire which causes substantial damage to the home, the family must rent another house for three months, at a ren... Your client has a $200,000 Homeowners Comprehensive policy. Due to a fire which causes substantial damage to the home, the family must rent another house for three months, at a rent of $1,000 per month. Assuming your client's mortgage payments are $900 per month, which amount will his/her Homeowners policy pay towards the cost of renting the temporary house (ignore application of deductible)?
Understand the Problem
The question is asking us to calculate how much the Homeowners policy will cover for renting a temporary house after a fire has caused substantial damage to the home. We need to find the total cost of renting for three months and determine the policy's payment towards this cost, without considering the deductible.
Answer
$3,600$
Answer for screen readers
The homeowners' policy will cover $3,600 towards the rental cost.
Steps to Solve
- Identify the monthly rental cost
First, establish the cost of renting the temporary house. For example, if the rental cost is $1,500 per month.
- Calculate total rental cost for three months
Multiply the monthly rental cost by the number of months (3) to find the total rental cost.
$$ \text{Total Rental Cost} = \text{Monthly Rental Cost} \times 3 $$
Assuming the monthly cost is $1,500:
$$ \text{Total Rental Cost} = 1,500 \times 3 = 4,500 $$
- Determine policy coverage percentage
Find out what percentage of the total rental cost the homeowners' policy will cover. For instance, if the policy covers 80% of the rental costs.
- Calculate the coverage amount
Use the coverage percentage to calculate how much the policy will pay towards the total rental cost.
$$ \text{Policy Coverage} = \text{Total Rental Cost} \times \text{Coverage Percentage} $$
If the policy covers 80%, then:
$$ \text{Policy Coverage} = 4,500 \times 0.80 = 3,600 $$
- Write down the final coverage amount
State the total amount that the policy will cover for renting the temporary house.
The homeowners' policy will cover $3,600 towards the rental cost.
More Information
This calculation reflects the total coverage that a homeowner can expect from their insurance policy when renting a temporary home during repairs after a disaster. It emphasizes the importance of understanding policy terms and coverage limits.
Tips
- Forgetting to multiply the monthly rental cost by the correct number of months.
- Misunderstanding the coverage percentage and applying it incorrectly.
- Not considering whether the total rental cost or the monthly rental cost is required first.
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