65. XYZ Shipping is sending a cargo ship across the Pacific and wants an Ocean Marine policy that will pay the full amount of the policy in the event of a total loss. XYZ Shipping needs their policy written on a/an ______ basis.
Answer: D
XYZ Shipping needs their policy written on a valued basis.
A valued basis policy guarantees payment of the full policy amount in the event of a total loss, which aligns perfectly with XYZ Shipping's requirements.
A) freight value
A freight value policy covers only the income from the freight charges, not the total value of the cargo. Therefore, it would not meet XYZ Shipping's need for a policy that pays the full amount in the event of a total loss.
B) actual cash value
An actual cash value policy pays the current market value of the cargo at the time of loss, which factors in depreciation. This would not satisfy XYZ Shipping's requirement for receiving the full policy amount in the event of total loss.
C) unvalued
An unvalued policy does not specify a predetermined amount for coverage and would typically calculate losses based on actual loss incurred. This type of policy would not provide the full amount desired by XYZ Shipping in case of total loss.
D) valued
A valued policy provides a predetermined amount of insurance coverage, ensuring that in the case of a total loss, XYZ Shipping will receive the full policy amount. This directly meets their requirement for comprehensive coverage.
Conclusion
The valued basis option is definitively correct as it guarantees full payment in the event of a total loss, which is the primary concern for XYZ Shipping. In contrast, the other options either limit the payout or do not ensure a full recovery, failing to meet the company's specific needs for complete financial protection.