Final answer:
The correct approach for Rachel is to truthfully answer all questions on her homeowners policy application to ensure she receives proper coverage and fair policy pricing. Misrepresentation can lead to a voided policy or inadequate coverage when needed.
Step-by-step explanation:
The question pertains to the best practices that Rachel should follow while filling out an application for a homeowners policy. Of the given options, the true statement is Option 3: Truthfully answering application questions helps ensure proper coverage and policy pricing.
Providing inaccurate information may lead to lower premiums short-term (Option 1) but could result in voiding the policy or inadequate coverage when a claim is filed. Overstating the value of personal property (Option 2) can lead to higher premiums without necessarily guaranteeing full coverage. Withholding information about recent renovations (Option 4) is also a form of misrepresentation and may similarly compromise the policy's integrity.
An insurance premium is the amount that policyholders pay for their insurance coverage. It's critical that these premiums are based on accurate information so they are actuarially fair, meaning the premium reflects the true risk profile of the insured. This also addresses the issue of moral hazard, where policyholders with insurance may take greater risks because they know they are protected, potentially leading to higher claims than expected.