The purpose of indemnity is to restore the insured to what financial state after a loss?

• A. Pre-loss financial condition, neither better nor worse.
• B. Current market value of the property at the time of loss.
• C. Replacement cost regardless of depreciation.
• D. A guaranteed profit from the loss.

Answer: (A)

Indemnity means the insurer’s role is to restore the insured to the financial position they had before the loss, no better and no worse. This is the idea behind paying to repair or replace damaged property up to bringing it back to its pre‑loss condition, without creating a windfall for the insured. Paying the current market value at the time of loss reflects depreciation and other factors and can leave the insured at less than—or more than—their original state, which isn’t the goal. Paying replacement cost regardless of depreciation could overcompensate, and guaranteeing a profit would violate the principle of indemnity.