Alabama Insurance Adjuster Practice Exam

Under a typical Equipment Breakdown Protection Coverage Form, how are covered losses mainly settled?

1. At face value

2. At replacement cost

3. At Actual Cash Value

4. With depreciation deducted

The correct answer is: At replacement cost

Under a typical Equipment Breakdown Protection Coverage Form, covered losses are mainly settled at replacement cost. This means that in the event of a covered loss, the insurer will provide the funds necessary to replace or repair the damaged equipment, without factoring in the depreciation of the equipment. This approach is beneficial for policyholders because it allows them to recover the full value needed to restore their operations to the condition that existed prior to the loss, ensuring that they can replace outdated or damaged equipment with new equipment of similar function. This method of settlement emphasizes the focus on ensuring that businesses can quickly and effectively resume normal operations without financial loss attributable to aging or wear and tear on the equipment. In contrast, other settlement methods like Actual Cash Value or those that involve deducting depreciation would not provide the same level of financial support, as they would reduce the reimbursement amount based on the depreciated value of the equipment at the time of loss.