South Carolina Life Insurance Practice Exam

The reduction, decrease, or disappearance of value of the insured person or property in a policy is known as what?

1. Underinsurance

2. Loss

3. Depreciation

4. Claim

The correct answer is: Loss

The term that describes the reduction, decrease, or disappearance of value of the insured person or property in a policy is known as loss. In the context of insurance, a loss occurs when there is a negative impact on the value of the insured asset, whether it's due to damage, destruction, theft, or any other form of impairment that results in financial detriment to the policyholder. This concept is foundational in the insurance industry, as the occurrence of a loss directly triggers the conditions under which insurance claims may be filed and benefits may be received. While depreciation refers to the gradual reduction in value of an asset over time due to wear and tear, it does not necessarily represent a specific event that leads to a claim. Underinsurance pertains to having inadequate coverage for the value of assets, which can lead to financial loss if a claim is made. A claim, on the other hand, is the formal request made by the insured to the insurance company for compensation for a loss incurred. However, the term ‘loss’ itself is the most accurate descriptor for the immediate impact of value reduction in insured properties or individuals.