Hawaii Insurance License Practice Exam

If a house valued at $100K is insured for $80K and sustains $15K in debris removal costs after a fire, how much will the insurer ultimately pay?

1. $100K

2. $80K

3. $85K

4. $95K

The correct answer is: $85K

In this scenario, the house is insured for $80,000, which represents the maximum amount the insurer would typically pay for covered damages to the structure itself. The $15,000 in debris removal costs is an additional expense incurred due to the fire. Insurers often cover debris removal costs as part of the property insurance policy. However, they will typically not pay more than the limit of the policy for property damage. Thus, combining the insured amount with the debris removal costs allows the total reimbursement to be calculated correctly. In this case, the insurer would pay out the $80,000 for the fire damage to the structure, and they would also cover the $15,000 in debris removal costs. However, since the total payout can’t exceed the coverage limit, the payment is capped at $80,000 for the structure damage. Therefore, the insurer will pay $80,000 for the fire damage plus $15,000 for debris removal, totaling $95,000. However, since the $15,000 for debris removal does not increase the overall coverage limit, the total to be paid out ultimately centers around the cost of repairs rather than additional maximum bounds. Hence, the total amount can be viewed in the sense that the insurer