Question

The "Pair and Sets" clause of an insurance contract provides that in the event of loss to part of the pair or set:

a. The loss will be paid in a pro-rata portion.
b. The company will replace the lost item.
c. The company will consider the remaining value then subtract from the total value of the set.
d. The company must pay as if all of the pair or set was lost.

Answer 1

The "Pair and Sets" clause deals with how a loss is settled when part of a pair or set is damaged or lost. It relates to coinsurance, where both the policyholder and insurance company share the cost of the loss. This concept also serves to mitigate moral hazard by involving the policyholder in the financial risk.

Step-by-step explanation:

The "Pair and Sets" clause in an insurance contract addresses the scenario where a part of a pair or set is lost. When this happens, the insurance company will typically consider the remaining value of the set and subtract this from the total insured value, providing a settlement for the lost part of the pair or set. This question relates to the broader concept of coinsurance, where an insurance policyholder pays a percentage of a loss, and the insurance company pays the remaining cost.Coinsurance is a method to reduce moral hazard by requiring that the policyholder bears a portion of the costs. For instance, in a home insurance claim following a fire, an 80/20 coinsurance clause would mean the insurance company pays for 80% of the repair costs while the homeowner is responsible for the remaining 20%. This promotes shared financial responsibility and helps ensure the policyholder is invested in the risk mitigation of their property.