Additional research revealed there are, in fact, two types of stated policies. One is a stated amount policy in which the premium is based on an amount stated by the insured. Losses, however, are still based on the actual cash value (ACV) of the property at the time of loss, but not to exceed the stated amount. To pay the stated amount automatically would create a moral hazard in that policy holders could overvalue their cars, thus making a profit. This is contrary to the basic principle of indemnity which is to restore a person to the position they were in before the loss. (Mr. Flippin contends, however, Nationwide effectively removed the moral hazard by having their agent inspect the car prior to issuing the policy.)
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