Which principle prevents paying more than the actual loss?

• A. Indemnity
• B. Insurable Interest
• C. Subrogation
• D. Utmost Good Faith

Answer: (A)

Indemnity means the insured should be restored to the financial position they had before the loss, not paid a larger amount or a profit from the claim. This principle ensures the insurer’s payment equals the actual loss amount (taking into account deductibles and policy limits), so there’s no windfall for the insured. For example, if the insured’s property loss is $10,000 and the deductible is $1,000, the insurer should pay $9,000, not more, aligning the payout with the real damage suffered. The other concepts don’t address how much is paid relative to the loss: insurable interest is about who has a stake in the subject matter, subrogation is the insurer seeking recovery from a third party after paying, and utmost good faith relates to honest disclosure in the claim.