GENERAL KNOWLEDGE

Detailed explanation-1: -In other words, principle of indemnity deals with the premise that in the event of a loss, the insurer must put the insured to the position in which he was before the loss occurred. This means that the insurer shall receive any compensation that is neither more nor less than the actual loss that has taken place.

Detailed explanation-2: -Indemnity is a guarantee to restore the insured to the position he or she was in before the uncertain incident that caused a loss for the insured. The insurer (provider) compensates the insured (policyholder).

Detailed explanation-3: -How does the concept of actual cash value support the principle of indemnity? The insured does not profit from a loss because the ACV is paid by the insurer (replacement cost-deprecation). The insurer pays what the damage is actually worth thus not overpaying.

Detailed explanation-4: -The principle of indemnity states that an insurance policy shall not provide compensation to the policyholder that exceeds their economic loss. This limits the benefit to an amount that is sufficient to restore the policyholder to the same financial state they were in prior to the loss.