Carmella has a small workshop where she has equipment to make ceramics. Much of the equipment was purchased 10 years ago. Recently, her workshop had a fire that destroyed a lot of her equipment. The insurance company has said that it will reimburse her for the amount she paid for the equipment 10 years ago. What type of insurance coverage was Carmella lacking?

Question 4 options:

Umbrella

Workers' compensation

Business interruption

Replacement cost

This is known as replacement cost coverage.

Rather than present value coverage which would reimburse for the depreciated value of the equipment, the replacement coverage will pay the full purchase value.

The correct answer would be Option D, Replacement Cost.

Explanation:

Carmella has a workshop where she has equipment to make ceramics which were purchased 10 years ago. Her workshop had a fire which destroyed a lot of her equipment. Insurance company just paid the amount she paid for the equipment 10 years ago. So she is lacking the Replacement Cost Coverage, because if she would have replacement cost coverage, she would have got full money reimbursement for the equipment destroyed in the fire. But because she didn't do that insurance, she would only get the amount she paid 10 years back.