Other Than Life (OTL) Practice Exam

The amount of insurance coverage available under the Corporation Building Policy may be insufficient in which circumstance?

1. Major renovation

2. Accidental damage

3. Advanced technologies

4. Underinsurance

The correct answer is: Underinsurance

Underinsurance is a key issue when it comes to the Corporation Building Policy, as it pertains specifically to having insufficient coverage relative to the actual value of the property or the potential risks involved. This can occur if the insured amount does not align with the current replacement cost or if there have been alterations that increase the building's worth significantly. In the context of insurance, underinsurance poses a financial risk because, in the event of a loss, the policyholder may not receive enough compensation to cover the expenses required for repairs or rebuilding, which can lead to significant financial distress. While major renovations, accidental damage, and advanced technologies can all affect coverage needs or risk factors, they do not inherently imply that the amount of insurance coverage will fall short. Underinsurance directly addresses the adequacy of coverage, making it the most appropriate choice for this question regarding situations where the Corporation Building Policy may prove insufficient.