A property is insured under an HO-3 policy for $160,000, but the replacement cost of the home is $250,000. The policy's loss settlement condition requires insurance of at least 80% of replacement cost. The home suffers $50,000 in covered damage, and the actual cash value of the damaged part is $30,000. How much will the insurer pay (before any deductible)?
Correct
The answer is A: $40,000
The HO-3 pays full replacement cost only when the home is insured for at least 80% of its replacement cost: 80% of $250,000 = $200,000. The insured carries $160,000, so the insurer pays the larger of two amounts: the actual cash value of the damaged part ($30,000), or the proportional amount, ($160,000 / $200,000) x $50,000 = $40,000. The larger figure, $40,000, is paid, and the homeowner bears the remaining $10,000.
Why not ?
Reviewed in our October 2026 Texas fact-check.
Show the answer
The answer is A: $40,000
The HO-3 pays full replacement cost only when the home is insured for at least 80% of its replacement cost: 80% of $250,000 = $200,000. The insured carries $160,000, so the insurer pays the larger of two amounts: the actual cash value of the damaged part ($30,000), or the proportional amount, ($160,000 / $200,000) x $50,000 = $40,000. The larger figure, $40,000, is paid, and the homeowner bears the remaining $10,000.
Reviewed in our October 2026 Texas fact-check.
