NSVT Module 3 Practice Exam

Which statement best describes the principle of indemnity?

The insured should profit from a covered loss The insurer must replace every damaged item with a new one The insurer may ignore policy limits when damages are severe Insurance should restore the insured financially without creating a gain from the loss

Correct Answer:

Insurance should restore the insured financially without creating a gain from the loss

Explanation:

Indemnity is intended to place the insured, as nearly as policy terms permit, in the financial position occupied before the loss without allowing a profit.

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