What type of policy allows the insurer to pay a previously agreed-upon amount in case of loss?

• A. Replacement Policy
• B. Actual Cash Value Policy
• C. Valued Policy
• D. Premiums Policy

Answer: (C)

The valued policy is designed to provide a predetermined amount for certain types of losses, regardless of the actual cash value at the time of the loss. This agreement is made upfront between the insurer and the insured, typically for specific items or in certain circumstances when determining the value of the loss might be difficult or subjective, such as with unique art pieces, collectibles, or historic properties.

The benefit of a valued policy for the policyholder is that they have certainty about the payout amount, which can simplify the claims process considerably. This type of policy emphasizes mutual agreement on value from the outset, which aids in avoiding disputes regarding the valuation of the insured property at the time of the loss.

In contrast, other policies like the replacement policy focus on covering the cost to replace an item with a new equivalent (potentially different from the original value), while the actual cash value policy involves depreciation and can lead to lower payouts than the insured might expect based on the original purchase price. Premiums policy isn’t a recognized term in insurance and does not relate to the context of payouts for losses.