Valued Contract

Pays a stated fixed amount when the insured event occurs, without measuring the actual economic loss — Under a valued contract, the parties agree in advance on the amount payable when the event occurs — the face amount of the life policy — regardless of the beneficiary's actual financial loss. Indemnity contracts, such as many property policies, reimburse only the actual loss up to the policy limit. Because a human life has no measurable market value, life insurance is written as a valued contract and pays the stated benefit upon death.

National insurance concept

The insurable interest must exist when the policy is applied for — In life insurance, the insurable interest must exist at the time the application is made. The policyowner must stand to suffer a genuine financial or emotional loss if the insured dies, such as a spouse, child, parent, or a business with a key employee. After the policy is issued, the insurable interest generally does not have to continue to exist for the beneficiary to collect, because the life insurance contract is a valued contract that pays its face amount rather than measuring an actual loss at the time of death.

National insurance concept