Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What is a valued policy in insurance terms?

1. A policy with flexible cash values

2. A policy where the cash value is agreed upon by both parties

3. A policy that cannot be renewed

4. A policy that offers multiple coverage options

The correct answer is: A policy where the cash value is agreed upon by both parties

A valued policy in insurance is one where the insured amount is agreed upon by both the insurer and the insured at the outset of the policy. This means that in the event of a total loss, the insurer will pay out the agreed value without the need for additional assessment or negotiation over the value of the loss. This type of policy provides certainty for both parties regarding the compensation for a claim, which is particularly important for insuring unique high-value items such as artworks or collectibles where valuation can be subjective. The other options describe different aspects of insurance but do not capture the essence of a valued policy. For example, policies that offer flexible cash values or multiple coverage options refer to the features and terms of a policy but do not specify the pre-agreed valuation aspect that defines a valued policy. A policy that cannot be renewed speaks to the terms governing the policy's duration rather than how values are determined in the event of a claim. Therefore, the agreement on cash value is what distinctly characterizes a valued policy.