Vermont Life and Health Practice Exam

The correct answer is that the insurance company is protected under the other insurance provision. This provision is designed to safeguard the insurer from financial loss that can arise when an individual has multiple insurance policies for the same risk. It ensures that the total amount of coverage does not exceed the value of the insurable interest, which is typically the amount necessary to cover a loss.

When a policyholder has multiple policies, the other insurance provision allows the insurer to limit their liability. For example, if a claim were to arise, the insurance company can adjust the payout according to the total amount of coverage the insured has across all policies, effectively preventing the insured from profiting from a claim. This provision is particularly important in preventing moral hazard, where the insured might intentionally incur losses because they stand to gain more from insurance payouts than they would from simply receiving the actual value of the loss.

The other options, such as the policyholder, insured's beneficiaries, and the applicant, do not reflect the primary focus of this provision. While they may benefit from insurance coverage, the primary protection offered by the other insurance provision specifically revolves around the insurer's financial risk management.