Machinery Insurance Question

How many here can insure for replacement value versus fair market value on a given unit? It always seemed that it took quite an argument to get an adjuster to pay on replacement cost which normally is higher than fair market value. Prior verification of a machine's condition would have to be a must before it would burn in a fire which seldom happens outside of stating model, year of manufacture, and hours ran. A guy I am familiar with got a much better payout than I thought he could have gotten on a burned combine. If it were possible to get double the fair market value on a combine then every less than ethical farmer would be burning combines up frequently so they could "trade up." What am I not seeing? My major pieces are not low houred so fair market is a good basis for value and the agent has never gone with the replacement value arguement.

I have worked in the insurance industry all my life. Not an agent, and my particular job did not directly involve insurance of equipment or autos. But with that said, I have never heard of replacement cost insurance on equipment or automobiles. To my knowledge those policies are almost always based on fair market value. Otherwise, the scenario would be just as you describe, the insured could be highly motivated to have 'something happen' to their insured equipment in order to upgrade to a brand new unit, at little or no cost to them. That goes against the whole concept of insurance which is simply to restore the insured to the same position he was in prior to the loss. No more, no less.

Insuring an item for replacement cost can skew the premium rates greatly. Imagine what your insurance premium for your 40 year old tractor that's worth maybe four or five thousand dollars would be if it was based on the cost of a new unit worth 10 times that much. The annual premium could easily be half the value of the unit!

The only place I have ever heard of replacement cost coverage is in regard to homeowners insurance on the structure and contents. There can be issues there too. As an example consider some of the fine old Victorian style houses that are located in so many small towns across our land, where fair market value doesn't come close to the cost of rebuilding that home.

Most homeowners policies will only pay replacement cost if the insured actually purchases a replacement item. If the insured does not replace the item then the loss will be settled at fair market(cash)value.

At least one company has replacement cost on new cars now!!! Don't know to much about it.

I'd have to ask about some models like 2520 and 4020 Deeres. My 2520 is about 3 times what it was new and a 4020 is much the same. I saw a 4020 go for $28,00 about two weeks ago, and they were only $10,000 new. Are they going to get new replacement cost or the going price?

In your case I would say you would benefit from the appreciation because even the median price the insurance company would find would be above the new price. Further, you can readily distinguished features based on the model year for a 4020 to filter certain examples out. I would not think a plain jane 1964 4020 would carry the same insurance value as a fully optioned 1972 for instance. It would be interesting to see what would happen on a 1988 348 baler as the 348 is still made today. Whether you could argue yours was in as nice condition as one sitting new on a dealer's lot. Probably would fail but I know there are guys who would try.

I had a neighbor that bought a combine and had to insure it due to it being financed. Now this started a long time ago. Several years after it was paid off, it burned. He was upset at having to borrow money to replace it. His wife said it is insured, I have been sending the premium every year. He told her he thought that stopped when it was paid off. She said she was never told to stop. He called the insurance company and was told it was insured for a certain value and he would be receiving a check, which was about double the value of the combine at the time it burned. That helped a lot with the down payment.