University of Central Florida (UCF) REE3043 Fundamentals of Real Estate Practice Exam 4

To determine the insurance's loss responsibility given the purchase price, appraisal amount, loan amount, and coverage percentage, you first need to establish the actual coverage amount provided by the insurance company.

In this case, the purchase price and appraisal amount are both $200,000, indicating that the property value is well-established at this figure. The loan amount is $190,000, which is less than both the purchase price and the appraisal amount, meaning that the property is not over-leveraged.

The insurance coverage is specified as 30%. To calculate the amount of loss responsibility, you take 30% of the property value. This is done by calculating 30% of the purchase price or appraisal amount (both are the same in this case):

30% of $200,000 equals $60,000.

However, when calculating loss responsibility for insurance, you must also consider the loan coverage aspect. The maximum amount the insurance will cover is either the calculated amount or the loan amount, whichever is less. In this scenario, since the loan amount is $190,000, the loss responsibility remains capped at $60,000 since that is the calculated coverage.

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