Question

Davis purchased a brand-new television in six years ago for $1,200. This year, a fire occurred in his house and damaged his television. If Davis' property is insured for replacement value, what will he likely receive?

Answer 1

Answer: The correct answer is the current cost of the television.

Explanation: When insurance coverage is for replacement value it means that if the insured suffers a loss they will receive the cost to replace the item. In this case, the television was $1,200 when he purchased it six years ago. If the same television is $2,000 to replace it, then he will receive the $2,000, not the $1,200 that he originally paid for it.