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Question

Difficulty: EasyBasic Principles of Insurance

Which type of insurance policy is exempt from the principle of indemnity, allowing the full sum assured to be paid upon the occurrence of the event?

  1. Life assurance policyAnswer
  2. B
    Fire insurance policy
  3. C
    Marine insurance policy
  4. D
    Motor vehicle insurance policy

Answer

Life assurance policy
Life assurance policies are exempt from the principle of indemnity because human life cannot be assigned a precise monetary value. Consequently, life assurance contracts guarantee the payment of a specific agreed amount upon death or policy maturity rather than providing financial restitution.

Step-by-Step Solution

1
Understand the core concept of the principle of indemnity.
The principle of indemnity ensures that an insured person is restored to their exact financial position immediately before a loss occurred, preventing any profit from an insurance claim.
Indemnity applies strictly to property and indemnity contracts where monetary loss can be measured precisely.
2
Identify which subject matter cannot be assigned a monetary value.
Human life cannot be measured or replaced financially.
Because exact financial loss cannot be calculated upon death or maturity, life assurance contracts pay an agreed fixed sum rather than indemnifying.

Key Concept

Non-applicability of the Principle of Indemnity to Life Assurance
Estimated Time:45s
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Topics

Basic Principles of Insurance

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