Which policy pays a stated amount in the event of a specified loss, regardless of the actual value of the loss?

• A. Valued policy
• B. Contract of indemnity
• C. Incontestable clause
• D. Binder

Answer: (A)

A valued policy pays a fixed, stated amount when a specified loss occurs, regardless of the actual value of the loss. This means the insurer and insured agree in advance on an amount to be paid, even if the loss would be worth more or less in real value. This setup is useful when valuation is difficult or a total loss is anticipated for certain risks, such as ships, aircraft, or other unique properties.

In contrast, a contract of indemnity provides payment based on actual loss incurred, up to the policy limit, bringing the insured back to roughly the same financial position as before the loss. An incontestable clause relates to the policy’s validity after issuance, not the payment amount, and a binder is simply temporary evidence of coverage. Because the described payment is a fixed amount regardless of actual loss value, the policy described is a valued policy.