What type of contract pays a stated amount in the event of a loss?

A valued contract is designed to pay a specific, predetermined amount in the event of a loss, regardless of the actual loss incurred. This type of contract is prevalent in situations where the insurable interest and value of the insured property can be hard to quantify accurately at the time of loss. Life insurance policies are a common example of valued contracts, as they pay a fixed amount upon the death of the insured, which is pre-established at the start of the contract.

In contrast, indemnity contracts focus on restoring the insured to their financial position before the loss without allowing for profit. This means that the payout is typically based on the actual loss rather than a set amount. While life insurance contracts do fit within the valued contract category, the broader definition of a valued contract applies in various contexts outside just life insurance.

Liability contracts generally provide coverage against claims brought by third parties and do not have a set payout established at the policy's inception, focusing instead on covering legal costs and settlements associated with claims. Therefore, the essence of a valued contract lies in its promise to pay a predetermined sum in the case of a specified loss.