Which principle holds that insurance policies should provide a benefit no greater than the loss suffered by the insured?

• A. Utmost good faith
• B. Contestable period
• C. Principle of indemnity
• D. Valued policy

Answer: (C)

Indemnity means the insured should be restored to the financial position they held before the loss, not paid more than the actual loss. This principle ensures the payout equals the economic value of the loss, avoiding any profit from the claim. In practice, insurers use actual cash value or replacement cost (minus depreciation and subject to limits) to achieve this, so payments reflect the real damage without creating a windfall. This also helps reduce moral hazard and maintains fairness in pricing and coverage. The other concepts cover honesty in disclosure, the period to challenge a policy decision, or paying a fixed amount regardless of actual loss, which do not capture the no-greater-than-loss idea.