Other Than Life (OTL) Practice Exam

Under a Profits Form policy, when does payment cease?

1. No co-insurance

2. When damaged property is restored

3. As long as business results are affected

4. When lost earnings from finished stock are excluded

The correct answer is: When damaged property is restored

In a Profits Form policy, payment ceases when the damaged property has been restored. This type of insurance is designed to cover the loss of profits due to a business interruption caused by damage to the property necessary for operations. The essence of the policy is to compensate the business for its lost income resulting from the disruption. Once the damaged property is repaired or replaced, the business can resume its normal operations, and any subsequent loss of profits is no longer applicable. This restoration provides the business with the necessary resources to return to its pre-loss income levels, thereby ending the payment period of the policy. The other options do not accurately reflect when payments cease under this policy structure. No co-insurance relates to how coverage amounts are calculated rather than the cessation of payments. Business results affected can indicate that losses may still be present, but it does not outline the specific point at which payments stop. Lastly, the exclusion of lost earnings from finished stock is more about the parameters of coverage rather than indicating when payment ceases.