Jerry​ Carter's home is currently​ valued, on a replacement cost​ basis, at ​$301,000. When he last checked his​ policy, his home was insured for ​$209,571 and he did not have an inflation guard endorsement. If he has a ​$26,188 claim due to a kitchen​ fire, how much will his​ homeowner's insurance policy​ pay? How much would be paid if his home were totally​ destroyed? In order to obtain full replacement​ coverage, how much insurance should Jerry carry on his​ house?


To determine how much Jerry's homeowner's insurance policy will pay for the kitchen fire claim and if the house were totally destroyed, we can use the **coinsurance formula**, which requires a homeowner to carry a certain percentage of the replacement cost to receive full coverage for partial losses. This percentage is typically 80%.

### Step 1: Calculate the Minimum Required Insurance

The minimum required insurance for full coverage is:
\[
\text{Minimum Required Insurance} = 80\% \times \text{Replacement Cost}
\]
\[
= 0.8 \times 301,000 = 240,800
\]

Jerry needs at least $240,800 of insurance to cover partial losses fully.

### Step 2: Calculate the Coinsurance Penalty

Since Jerry's current coverage is $209,571, which is less than the required $240,800, the insurance company will apply a coinsurance penalty.

The payout for the claim is calculated as:
\[
\text{Amount Paid} = \left(\frac{\text{Actual Coverage}}{\text{Minimum Required Insurance}}\right) \times \text{Claim}
\]
\[
= \left(\frac{209,571}{240,800}\right) \times 26,188
\]
\[
= 0.87 \times 26,188 \approx 22,989.56
\]

So, the insurance company will pay approximately **$22,990** for the kitchen fire claim.

### Step 3: Total Loss Scenario

If the home were totally destroyed, the insurance company would only pay up to the policy limit, which is **$209,571**.

### Step 4: Full Replacement Coverage Requirement

To obtain full replacement coverage, Jerry should carry insurance equal to the full replacement cost of his house, which is **$301,000**.

### Summary:
1. **Kitchen fire claim payout:** $22,990 (approximately).
2. **Payout if the house is totally destroyed:** $209,571.
3. **Required insurance for full replacement coverage:** $301,000.

Would you like more details or have any questions?

Here are some related questions:
1. What is a coinsurance clause in homeowners' insurance?
2. How does the coinsurance penalty affect insurance claims?
3. What is the purpose of an inflation guard endorsement?
4. How can Jerry avoid the coinsurance penalty in the future?
5. What factors influence the replacement cost of a home?

**Tip:** Always review your insurance policy annually to ensure coverage keeps pace with rising replacement costs.

Jerry​ Carter's home is currently​ valued, on a replacement cost​ basis, at ​$301,000. When he last checked his​ policy, his home was insured for ​$209,571 and he did not have an inflation guard endorsement. If he has a ​$26,188 claim due to a kitchen​ fire, how much will his​ homeowner's insurance policy​ pay? How much would be paid if his home were totally​ destroyed? In order to obtain full replacement​ coverage, how much insurance should Jerry carry on his​ house?

Explore how to calculate an insurance claim for a kitchen fire when a home is insured below its replacement cost. Learn how coinsurance penalties impact payouts, with examples for a claim of $26,188 and a house replacement value of $301,000. Understand how much insurance coverage Jerry should carry to avoid penalties.

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