When you bought your business, a complicated custom-made packing machine was included in the sale. You believe

When you bought your business, a complicated custom-made packing machine was included in the sale. You believe

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that if the packing machine were destroyed that it would cost you $125,000 to replace. You are looking to change your property insurance and the new insurance agent is relying on you to provide a value for the packing machine. You are considering two options. One is to purchase a policy that insures your machinery for $50,000. You figure this will lower the premium and it will save money on your insurance bills. Frankly, you doubt the machine will fail anytime soon. The other option you are considering is insuring your machinery for $200,000. You figure if you get this policy, you will pay more for the insurance, but if your machinery is destroyed, you will not only get back enough money to purchase new machinery, but a $75,000 bonus to boot. For both of these options, what kind of payment do you think you would receive if your machinery is destroyed and the actual value of your machinery is established?

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