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Difficulty: EasyBasic Principles of Insurance

The principle of indemnity allows an insured person to profit financially from an insurance claim by recovering an amount greater than the actual financial loss suffered.

Answer: Answer

Answer

False. The principle of indemnity strictly restores the insured to their pre-loss financial position without allowing any profit.
Under the principle of indemnity, compensation is strictly limited to the actual monetary value of the loss sustained. The insured is placed in the same financial position as before the loss, preventing any financial gain.

Step-by-Step Solution

1
Identify the core purpose of indemnity in commercial insurance.
Indemnity aims to compensate for actual financial loss, bringing the policyholder back to their financial state just before the incident.
Insurance is designed for protection against financial risk, not for financial gain or speculation.
2
Evaluate the statement's claim about making a profit.
The claim that indemnity allows an insured person to recover more than the actual loss and profit is incorrect.
Profiting from insurance claims creates moral hazard and violates legal principles governing contract of indemnity.

Key Concept

Principle of Indemnity
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Topics

Basic Principles of Insurance

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