How much will Frank's insurance pay for a painting that was ruined, despite finding a replacement for less?

In this scenario, Frank's insurance policy is designed to pay the replacement value of the item insured rather than just the cost to replace it at a lower price. Insurance policies typically cover the insured item's actual cash value or replacement cost, depending on the terms of the policy.

Here, Frank's insurance company has determined that the value of the ruined painting at the time of loss is $5,000, which reflects the fair value or replacement cost in the market today. This means the policyholder is entitled to receive the full insured amount for damages incurred, regardless of the lower cost of finding a replacement.

The focus is on restoring Frank to the same financial position he was in before the loss, which justifies why the payout is at the higher value of $5,000 instead of the less expensive replacement option. This principle ensures that insurance functions correctly, providing adequate support to policyholders during claims.