Question

... During a strong storm, Missy’s grain drill was mangled by a tornado, which rendered it useless. Before the damage, the grain drill was worth $25,000, but it would cost $45,000 to buy a new one today. Missy’s farm policy has a replacement cost endorsement, and the grain drill is scheduled on a Mobile Agricultural Machinery and Equipment form with a $36,000 limit. Missy replaces her grain drill with one she found on sale for $40,000. How much total indemnification will she receive?

Answer 1

Answer:

$40,000

Explanation:

Since Missy's policy had a replacement cost endorsement, her insurer must pay for a replacement grain drill even if its cost is higher than the policy's limit.

Replacement cost insurance is generally better than cash cost insurance because most equipment, buildings (including houses) and vehicles tend to depreciate, and their replacement cost is generally higher than their cash value.