The principle of indemnity prevents duplicate recovery for the same loss. Which term describes this principle?

• A. Utmost good faith
• B. Insurable interest
• C. Subrogation
• D. Principle of indemnity

Answer: (D)

Indemnity means you can’t profit from a loss—the insurer reimburses only what was actually lost, restoring the insured to the financial position they had before the damage, not more. The term that describes this rule is the principle of indemnity. It keeps payments in line with the real loss (subject to policy limits and the basis of any settlement like actual cash value or replacement cost), so there’s no windfall from an insured event. Utmost good faith is about truthful disclosure and fair dealing in the contract. Insurable interest requires the insured to have a legitimate stake in the subject of the insurance. Subrogation is the insurer’s right to pursue recovery from the responsible party after payment.