Property and Casualty Insurance Practice Exam

What is a Valued or Agreed Amount Contract?

1. A contract that specifies property value as agreed by both parties

2. A contract that allows multiple claims regardless of value

3. A standard policy with no listed values

4. A contract for policies with undefined claim limits

The correct answer is: A contract that specifies property value as agreed by both parties

A Valued or Agreed Amount Contract is a type of insurance policy that explicitly states the agreed value of the insured property at the time the contract is formed. This means that both the insurer and the insured mutually determine and agree upon the value of the property being insured. This predetermined value is particularly important because it simplifies the claims process; in the event of a total loss, the insurer pays out the agreed amount without requiring further assessment of the property’s value. This type of contract is often used for items that can be difficult to appraise accurately or when the insured and insurer want to establish clarity and certainty from the beginning, which protects both parties. Furthermore, the agreed amount provides assurance to the insured that they will receive a fair compensation aligned with their expectations. In contrast, other types of contracts may not establish a specific value, leading to complexities during the claims process regarding the calculation of losses or payouts.