Tara operates a small computer design business.Her primary asset is her computer system, which she bought four years ago for $25 000.She bought property insurance with respect to that machine.Tara's computer was recently stolen.Her insurance policy covers loss by theft and the insurance company admits that it must pay a benefit to Tara.The concept of indemnification necessarily means that Tara will receive either $25 000 or the price of a new computer that is at least as good as her old computer was when it was new.

Question

Quizplus · Accepted Answer

The concept of indemnification in insurance is to restore the insured to the financial position they were in immediately before the loss, not necessarily to pay the original purchase price or the cost of a new replacement. The payment might reflect the depreciated value of the stolen computer, not its original cost or the cost of a new equivalent model.

Tara Operates a Small Computer Design Business