What is that principle which states that an insured may not be compensated by the insurance company in an amount exceeding the insured's economic loss?
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A. B. C. D.B
The correct answer to this question is B. Principle of indemnity.
The principle of indemnity is a fundamental concept of insurance, which states that an insured may not be compensated by the insurance company in an amount exceeding the insured's economic loss. The objective of insurance is to restore the insured to the same financial position as before the loss occurred, not to provide a profit. Therefore, the principle of indemnity ensures that the insured receives a fair compensation for the actual loss incurred, without profiting from the loss.
The principle of indemnity is based on the idea that insurance should provide compensation for the actual loss suffered by the insured, but not more than that. It prevents the insured from obtaining a windfall or profiting from a loss, and ensures that the insured has an incentive to take reasonable steps to minimize the loss.
For example, if a person's car is damaged in an accident and the car's market value is $10,000, the insurance company will pay the insured only the actual cost of repairing or replacing the car, which may be less than the market value. If the cost of repair is $7,000, the insurance company will pay the insured only $7,000, even if the market value of the car was $10,000.
In conclusion, the principle of indemnity is a fundamental concept of insurance that ensures that the insured receives a fair compensation for the actual loss incurred, without profiting from the loss.