Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is the consideration when calculating payment under the Indemnity agreement?

1. Actual Cash Value and policy limit only

2. Insured's financial interest and market value only

3. Actual Cash Value, Insured's financial interest, Amount of insurance

4. Only the highest amount of three provided

The correct answer is: Actual Cash Value, Insured's financial interest, Amount of insurance

The consideration when calculating payment under the Indemnity agreement includes several key elements: Actual Cash Value, the Insured's financial interest, and the Amount of insurance. Actual Cash Value (ACV) represents the value of the property at the time of the loss, which takes into account depreciation. This is crucial in determining how much the insured is entitled to receive for their loss, as it reflects the current market value rather than the original purchase price. The Insured's financial interest ensures that the payment aligns with the value of the investment made by the insured in the property. This means that if the loss exceeds the financial stake they have in the property, the payment would be adjusted accordingly to avoid leaving the insured at a loss. The Amount of insurance is the coverage limit specified in the policy, which caps the maximum payout the insured can receive. However, the payment cannot exceed this limit even if the actual loss is greater than the coverage. Combining these elements allows for a fair and thorough calculation of the payment due under the Indemnity agreement, ensuring that the insured receives compensation that accurately reflects their loss and financial investment in the property.