Understanding Insurance Payouts for Pairs and Sets in Hawaii

If an insured has a pair and set coverage for $5000 and breaks one item worth $500, what will the insurance payout be?

• A. $500
• B. $5000
• C. $4500
• D. $4000

Answer: (C)

In the context of pairs and sets coverage, the insurance payout for a damaged item is determined by considering the value of the entire set rather than just the individual item. When an insured has coverage for a pair or set, it means that the insurance will cover loss or damage to the entire set, not just the individual component. In this scenario, the insured has a pair and set coverage totaling $5,000. When one item within the set, worth $500, is broken, the insurance adjusts the payout based on the total value of the set rather than paying for the damaged item alone. The insurance would account for the fact that the set's value is diminished by the loss of this item. To determine the payout, you subtract the value of the damaged item from the total value of the coverage. Thus, the payout would be calculated as $5,000 (the value of the coverage) minus $500 (the value of the damaged item), resulting in a payout of $4,500. This approach helps maintain the integrity of the set while compensating the insured for their loss.

When it comes to insurance, understanding how payouts work can feel like navigating a complex maze. For students gearing up for the Hawaii Insurance License Exam, grappling with concepts like pairs and sets coverage is crucial. But fear not—let’s simplify this important topic!

So, what happens when you’ve got a pair of items insured for $5,000 and, unfortunately, one gets damaged, worth $500? You know what? It's a bit more than just a simple calculation. Let's explore this!

What Is Pairs and Sets Coverage Anyway?

First off, pairs and sets coverage is a special kind of insurance that protects not just individual items but the overall value of a set. Imagine you’ve got a beautiful collection of dinnerware—pure class, right? If one plate gets broken, you wouldn’t want to be shortchanged just because one piece was damaged. Instead, the insurance recognizes that the entire set’s value is affected, and that’s where it gets interesting.

The $5,000 Question: How Much Do You Get?

Now, let’s get back to your question. You have $5,000 in pairs and sets coverage, and you’ve broken one item worth $500. Sounds pretty straightforward, right? Here comes the twist: the payout isn’t just the value of that one damaged item.

Instead, the insurance company looks at the whole picture. They acknowledge that breaking one item diminishes the set's overall worth. Hence, they calculate the payout by subtracting the value of the broken item from the total coverage amount.

Let's Do the Math Together

Here’s how the math plays out:

• Total coverage: $5,000

• Value of damaged item: $500

You subtract the value of the damaged item from the total coverage:

[ Payout = Total Coverage - Value of Damaged Item ]

[ Payout = $5,000 - $500 = $4,500 ]

And there you have it—the insurance payout will be $4,500. This ensures that you’re compensated adequately for your loss, maintaining the integrity of the set. It's like getting a quality assurance for your beloved items!

Why This Matters in Your Exam

Understanding this payout structure is essential as you prepare for the Hawaii Insurance License Exam. The mechanics behind how insurance calculates payouts is not just a random detail; it reflects core principles in risk management and valuation, helping you approach varied questions with confidence during your studies.

You might think, “Why bother?” But grasping these concepts gives you a leg up when tackling exam questions. Whether it’s pairs and sets or deductibles, knowing the intricacies makes you a more informed agent for clients down the road.

Closing Thoughts

At the end of the day, insurance is about protecting what matters to us. Whether it’s a valuable set of china or a beloved pair of shoes, understanding the nuances of coverage—like pairs and sets—ensures you’re ready for the unique challenges ahead. Embrace these lessons, and you’ll not only ace your exam but thrive in a career that helps others safeguard their assets.

Good luck as you continue your journey toward obtaining your Hawaii insurance license! You’re well on your way to becoming a knowledgeable professional in the insurance realm. Keep pushing forward!