Leith bought a homeowner's insurance policy when he purchased his new home. He pays an annual premium of $775 for property coverage of $250,000 and liability coverage of $350,000. His deductible is $1,300. Leith pays this premium for 11 years, at which point Leith’s dog bites a neighbor walking down his sidewalk. The neighbor sues Leith for $27,000 in medical bills and pain and suffering. Leith submits this as a claim to his homeowner’s insurance company. If the claim is approved, how much will Leith’s insurance company pay the neighbor?
$26,225
$27,000
$25,700
$18,475
My answer is $25,700
I agree
Yes the answer is $25,700.
To solve it, you’ll take the deductible (1,300) and you’ll subtract it from what the neighbor is suing for (27,000). That number is how much the insurance will pay. (A deductible is how much you have to pay if a claim is approved, the insurance will pay the rest of the money afterwards)
To determine how much Leith's insurance company will pay the neighbor, we need to consider the homeowner's insurance policy coverage details.
The liability coverage on Leith's homeowner's insurance policy is $350,000. The neighbor is suing for $27,000 in medical bills and pain and suffering.
Typically, homeowner's insurance policies have separate limits for property coverage and liability coverage. In this case, the liability coverage of $350,000 will apply to cover the neighbor's claim.
However, there is usually a deductible that needs to be met before the insurance company starts paying. In this case, the deductible is $1,300.
To calculate the amount that the insurance company will pay, we subtract the deductible from the neighbor's claim amount and compare it to the liability coverage. If the difference is greater than the liability coverage, the insurance company will pay the limit of liability coverage.
Let's calculate it step-by-step:
1. Subtract the deductible from the neighbor's claim: $27,000 - $1,300 = $25,700.
2. Check if the resulting amount is greater than the liability coverage: $25,700 > $350,000.
Since $25,700 is less than the liability coverage of $350,000, the insurance company will pay the full amount of the neighbor's claim, which is $25,700.
Therefore, the correct answer is $25,700.
To calculate how much Leith's insurance company will pay the neighbor, we need to consider Leith's liability coverage and deductible.
First, let's look at Leith's liability coverage. The liability coverage of $350,000 represents the maximum amount the insurance company will pay for claims. Since the neighbor is suing for $27,000 in medical bills and pain and suffering, it falls within the liability coverage limit.
Next, we need to consider the deductible. A deductible is the amount that the policyholder (in this case, Leith) is responsible for paying before the insurance company covers the rest. Leith's deductible is $1,300.
Now, let's calculate how much the insurance company will pay the neighbor:
Claim amount: $27,000
Deductible: $1,300
Since the claim amount is higher than the deductible, Leith's insurance company will pay the difference between the claim amount and the deductible.
Claim amount - Deductible = Insurance company payout
$27,000 - $1,300 = $25,700
Therefore, Leith's insurance company will pay the neighbor $25,700, which means your answer of $25,700 is correct.