The insured's home is covered by an HO-3. If the replacement value is $60,000, how much Coverage A is needed for replacement cost coverage?

To determine the amount of Coverage A needed for replacement cost coverage under an HO-3 policy, it is essential to understand that this coverage is designed to insure the dwelling for its replacement cost rather than its market value or any other assessment of value.

In the case of a home with a replacement value of $60,000, the amount of Coverage A must at least equal the estimated cost to replace the home with a similar structure at current construction costs. This ensures that in the event of a total loss, the insured can replace their home without incurring significant out-of-pocket expenses.

When the answer provided suggests a figure less than the replacement value, like $48,000, it implies that the insured may not be protecting a sufficient amount against potential loss. For valid coverage, it is important for Coverage A to mirror the full replacement cost.

Therefore, if the replacement value is set at $60,000, Coverage A should also be set at that same amount, making the preferred answer $60,000. This provides comprehensive protection to the insured, aligning with the principles of ensuring full rebuilding capability in the face of disaster.

In summary, since Coverage A should be equal to the replacement cost to provide the necessary financial security, the