If a home insured for $162,000 is destroyed in a fire, and it was valued at $120,000 at the time of loss, what is the insurer's obligation?

In this scenario, the insurer's obligation hinges on the principle of indemnity, which ensures that an insured party is restored to the financial position they were in prior to the loss, without allowing for profit. Since the home was insured for $162,000, that amount reflects the agreed-upon value in the policy.

Upon total loss of the insured property, the insurer is obligated to pay the full amount stated in the policy, which is $162,000, as long as the policyholder has maintained the coverage and the home was insured for at least its replacement value. The replacement cost coverage typically ensures that the homeowners will not receive less than their policy limit in the event of a total loss, provided they have not underinspected.

The value of $120,000 at the time of the loss doesn't factor into this obligation; rather, it serves as an indication of the home's depreciated value. In this case, since the insured amount exceeds the current valued amount, the insurer must honor the policy limit, preventing the insured from suffering a financial shortfall due to a loss underinsured.