PSI Life Exam Practice Test

What must an insurance company do once its liability on a claim is established?

1. Investigate the claim further

2. Settle the claim in good faith

3. Offer a settlement less than the policy limit

4. Delay settlement for further review

The correct answer is: Settle the claim in good faith

Once an insurance company's liability on a claim is established, it is required to settle the claim in good faith. This principle of good faith emphasizes the insurer's obligation to act honestly and fairly in dealings with the insured. It means that the company must take the necessary steps to resolve the claim appropriately and in a timely manner, ensuring that the insured receives the benefits entitled to them under the policy. The process involves evaluating the claim accurately and fairly, and then providing a settlement that is justifiable based on the policy terms and the circumstances surrounding the claim. By settling in good faith, the insurer not only adheres to legal obligations but also helps maintain trust and good relations with policyholders, which is crucial in the insurance industry. The other options, such as investigating the claim further or delaying settlement, indicate actions that could undermine the insured's expectations of prompt and fair resolution. Offering a settlement less than the policy limit may not align with fulfilling the company's obligations under the terms of the insurance policy, especially if the claim amount is valid and justified.