General Insurance Level 1 Practice Exam

The correct answer is that the base premium for own-damage coverage increases as the declared value increases. This is because the declared value represents the amount of insurance coverage a policyholder chooses for their vehicle or property. When the declared value rises, the insurer's potential liability in the event of a loss also increases. As a result, insurers typically adjust premiums accordingly since a higher declared value means a greater risk exposure for them.

An increase in the declared value within an insurance policy indicates that the insured asset is worth more, thus warranting a higher premium to adequately cover potential damages or losses. This adjustment reflects the additional risk the insurer assumes, ensuring that the policyholder has adequate financial protection that corresponds to the value of their property.