Which statement describes a Contract of Indemnity?

• A. The insured should be restored to the approximate financial condition occupied before the loss occurred, no better or no worse.
• B. A contract that guarantees profit to the insured.
• C. A contract that pays a fixed sum regardless of loss.
• D. A contract that covers only property damage.

Answer: (A)

The core idea here is the indemnity principle: the insurer's job is to restore the insured to the financial position they were in before the loss, no more and no less. This is what prevents the insured from profiting from a claim and keeps the compensation tied to actual loss. The statement that best describes a Contract of Indemnity says the insured should be restored to the approximate financial condition occupied before the loss occurred, no better or no worse.

The other descriptions miss that core purpose. A contract that guarantees profit would let the insured gain from the loss, which indemnity forbids. A contract that pays a fixed sum regardless of the loss isn’t tied to actual damages and thus isn’t indemnity. A contract that covers only property damage narrows scope but doesn’t define the fundamental aim of indemnity, which is about restoring financial position, not about limitations on the type of loss.