For calculating the replacement value of the house the insurance company keeps in mind few things like the location of the house, year of construction, the up-gradation and the type of gradation.
Explanation:
These are some of the factors insurance companies take into account when calculating the replacement value of a home:
Location of the home, Year of construction, Year of last major upgrades, Types of upgrades, Total square footage of the home, Foundation and building materials for the home.
The 80% rule refers to the fact that most insurance companies will not fully cover the cost of damage to a house due to the occurrence of an insured event (e.g., fire or flood) unless the homeowner has purchased insurance coverage equal to at least 80% of the house's total replacement value.
The amount of insurance that the Brown family would carry in fire insurance to collect the full amount from the fire damages is $250,000, which is comprehensive.
Cost of home = $300,000
Value of the land = $50,000
Value of the building = $250,000 ($300,000 - $50,000)
Damages from fire = $50,000
Thus, the amount of insurance that the Brown family would carry in fire insurance to collect the full amount from the fire damages is $250,000.
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