Question

How does an "open" policy differ from a "valued" policy?

1. An open policy is able to protect against perils not specified in the policy.
2. A valued policy is designed to have a greater monetary value than an open policy.
3. The terms of an open policy are open to interpretation, while a valued policy is very precise.
4. An open policy has a value to be determined, while a valued policy protects for a specific amount.

Answer 1

An open policy does not specify the value of insured items upfront and determines the value at the time of loss, whereas a valued policy has a predetermined value agreed upon at the policy's inception.

Step-by-step explanation:

An open policy is a type of insurance coverage where the value of the goods or property to be insured is not specified upfront. Instead, the value of the claim is determined at the time of the loss. This form of policy is used when it's challenging to value the items ahead of time, such as with cargo or fluctuating stocks.

A valued policy, on the other hand, specifies a fixed and agreed-upon value for the insured property or goods at the inception of the policy. In the event of total loss, the insured is paid this agreed value, which may not necessarily reflect the actual market value at the time of loss.

For example, a valued policy might be taken out on a piece of artwork which has been appraised and insured for a specific amount, say $50,000. If the artwork is completely destroyed, the insurance company would pay out this agreed value, irrespective of market changes.

With an open policy, however, if a warehouse of goods was insured and the goods were destroyed, the payout would be based upon the actual loss incurred at the market price at the time of damage or loss.

Therefore, the key difference lies in how the value of the insured item is determined: an open policy is valued at the time of loss, whereas a valued policy has a pre-established value.