QS Study

Life Insurance Valued Policy

The value of the property to be insured is determined at the inception of the policy. In this case, the insurer pays the total admitted value irrespective of the then market value of the properties. The measure of indemnity is, in consequence, not value at the time of tire, but a value agreed at the inception of the policy. The insurer pays the insured a fixed sum following the destruction of the insured property. So, a valued policy is an insurance policy in which the amount payable for a claim is agreed upon when the policy is issued and is not related to the actual value of a loss.

The amount fixed may be greater or less than the actual market value of the property destroyed by fire at the time of loss. In this policy, the measure of indemnity is based on the value of properties rather than on the market values of property destroyed.

This policy is used for insuring; especially pictures, sculptures, and works of art, jewelry, rare things, and articles of everyday use. With such policies, the exact worth of the insured items or property at the time of loss is irrelevant, because the value of the covered property has already been established.

Since the value of damage of these articles cannot be easily determined at the time of loss, the valued policies are commonly used. Strictly speaking, the valued policies are betrayal from the principle or indemnity in p because the market price is not paid in this case.

The valued policy is beneficial to the insured because he is relieved of proving the value of the property at the time of loss by searching for invoices and receipts. The disadvantage is that the new purchases and replacement cannot be added to the valued policy.

The valuation, therefore, is revised at frequent intervals. The insurer will have to pay more than the actual loss if the market price of the property has gone down. It may increase the moral hazard. There may be difficulty in settling the partial losses. The valued policies can be disputed on grounds of fraud.

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