Multiple choice

Directions: For this question, select the best of the answer choices given.

Home insurance premiums are typically set after an appraiser assigns an official assessed value. Reassessments should be frequent in order to remove distortions that arise when property value changes at differential rates. In actual fact, however, properties are reassessed only when they stand to benefit the insurance company. In other words, a reassessment takes place when the most likely outcome is in increase in insurance premiums to the homeowner. Which of the following, if true, describes a situation in which a reassessment should occur but in unlikely to do so?

  1. Property values have risen sharply and uniformly.

  2. Property values have risen everywhere - some very sharply, some moderately.

  3. Property values have on the whole risen sharply; yet some have dropped slightly.

  4. Property values have on the whole dropped significantly; yet some have risen slightly.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The best answer is (4). Distortions occur when property values change at differential rates. If most property values have dropped significantly, but some have risen slightly, a reassessment should occur but is unlikely to do so since it will not benefit the insurance companies.

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