Question

Farmer Steve barely escapes a massive tornado, but the storm does completely destroy one of the barns on his property. Luckily, Steve has an insurance policy on his barn with a replacement cost endorsement, and the barn was fully insured. At the time of the loss, the actual cash value of the barn was $65,000, and its replacement cost is currently $85,000. What is the most Steve can collect from his insurer before he completes the repairs?

Answer 1

Steve can collect up to the full replacement cost of $85,000 from his insurer for the destroyed barn.

Step-by-step explanation:

To determine the most Steve can collect from his insurer before he completes the repairs, we need to understand how insurance coverage works. In this case, Steve has a replacement cost endorsement on his barn insurance policy. This means that his insurer will pay the full cost of replacing the barn, up to the policy limit, regardless of the actual cash value of the barn.

So, in this scenario, Steve can collect up to the full replacement cost of $85,000 from his insurer, even though the actual cash value of the barn was $65,000. However, it's important to note that Steve will typically need to complete the repairs in order to receive the full amount of the insurance claim.

The insurance policy on Farmer Steve's barn with a replacement cost endorsement indicates that the most Steve can collect from his insurer before he completes the repairs should be based on the actual cash value, which is $65,000.

The replacement cost is $85,000, but insurers typically pay out the actual cash value until the repairs are made, and then cover the remaining costs up to the replacement value once the repairs are completed. This prevents any payout for a rebuild that never occurs.