APIR Foundations of Insurance Regulation 2025 – 400 Free Practice Questions to Pass the Exam

A Valued Policy guarantees to pay the face amount of insurance in the event of a loss, regardless of the actual cash value of the property at the time of the loss. This type of policy is particularly relevant in situations where it can be difficult to determine the actual cash value due to the unique nature of the insured item, such as artwork or rare collectibles, where the market value may not accurately reflect the loss.

This guarantees that the insured amount will be paid out, providing a clearer understanding of the compensation one can expect in the event of a total loss. Such policies are structured to provide certainty for both the insurer and the insured, as the risk is clearly defined at the outset.

In contrast, the other options relate to different types of insurance payouts. Payments based on actual cash value take depreciation into account, while replacement cost coverage focuses on the amount needed to replace the lost item without deduction for depreciation. Deductibles would affect the payout only after a loss has been assessed, which is not applicable in the case of a valued policy, where the face amount is guaranteed regardless of other considerations.