Montana State Life Insurance Practice Exam

What does "Payment Discharges Insurer's Liability" mean?

1. Insurers are required to make payments promptly

2. Payment under a policy fully discharges the insurer from all related claims

3. Payments are limited to the death benefit amounts only

4. Insurers are relieved of making future payments

The correct answer is: Payment under a policy fully discharges the insurer from all related claims

The phrase "Payment Discharges Insurer's Liability" means that once the insurer makes a payment under the terms of an insurance policy, it is no longer liable for any further claims related to that instance. This principle is essential in insurance contracts, as it provides clarity and closure for both the insurer and the policyholder. When an insurer pays a claim, it fulfills its obligation as outlined in the policy. Consequently, the insurer is released from any further financial responsibility regarding that specific claim. This discharge ensures that once the payment is made, the insurer has met its contractual obligations, and the matter is resolved, preventing the policyholder from making additional claims on the same issue. Understanding this concept is critical for both insurers and policyholders, as it emphasizes the finality of payment and helps avoid misunderstandings about ongoing liabilities after a claim has been settled.