What is one principle of indemnity in insurance?

The principle of indemnity in insurance fundamentally states that the insured is entitled to be compensated only for their actual loss and cannot profit from an insurance claim. This ensures that insurance serves as a mechanism to restore the insured to their pre-loss financial condition rather than providing a windfall or an incentive for fraudulent claims.

This principle is crucial to maintaining the integrity of the insurance system, as it prevents policyholders from over-insuring or taking undue advantage of their coverage. In practice, this means if a person suffers a loss due to a covered event, they can only claim the amount that corresponds to the value of that loss, ensuring that they do not receive more than what they have lost.

Understanding this concept is important for both consumers and providers of insurance, as it emphasizes fair and equitable dealings in the realm of insurance policies and claims.