Jill and Tom have a home with a $300,000 replacement cost and an HO-3—Special Form (HO-3) policy with a Coverage A limit of $270,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, how much will the insurer pay to replace the air conditioning unit?

Jill and Tom have a home with a $300,000 replacement cost and an HO-3—Special Form (HO-3) policy with a Coverage A limit of $270,000. Lightning strikes the central air conditioning unit and destroys it beyond repair. The unit has a replacement cost of $5,000, is five years old, and has a useful life of 10 years. Ignoring any deductible that might apply, how much will the insurer pay to replace the air conditioning unit?




A. $2,500


B. $3,000


C. $4,500


D. $5,000



Answer: D. $5,000.

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