Question

Which principle of insurance dictates that claim can be lodged only for the actual amount of the loss?

• A. Principle of Caveat Emptor
• B. Principle of Contribution
• C. Principle of Indemnity
• D. Principle of Subrogation

Hint:

Indemnity = No profit, only compensation for real loss.

Answer 1

The Correct Option is C

One of the basic principles of insurance is the Principle of Indemnity.
This principle states that the insured should not gain profit from an insurance claim.
It ensures that the insured is only compensated for the actual amount of loss suffered due to an insured event.
For example, if a property worth ₹10 lakh is insured and damaged partially for ₹4 lakh, the claim amount will be ₹4 lakh only — not the entire sum insured.
This principle prevents moral hazard and ensures that insurance is purely a risk-covering contract and not a source of unjust gain.
Therefore, the principle that dictates claims should cover only actual loss is the Principle of Indemnity.