General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Life insurance is a "valued" contract rather than a strict indemnity contract. This means the insurer:
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
Under a valued contract, the parties agree in advance on the amount payable when the event occurs — the face amount of the life policy — regardless of the beneficiary's actual financial loss. Indemnity contracts, such as many property policies, reimburse only the actual loss up to the policy limit. Because a human life has no measurable market value, life insurance is written as a valued contract and pays the stated benefit upon death.
Why the other options are wrong
- A) Measuring actual economic loss describes an indemnity contract, not a valued life policy.
- B) The fixed face amount is paid on the insured event; the fact that the loss cannot be monetized does not reduce the benefit.
- C) Replacement cost concepts apply to property insurance, not to valued life benefits.
Memory hook
Valued = agreed dollars in advance. Indemnity = prove the loss, get reimbursed.