Florida 2-20 General Lines Agent (Property, Casualty, Commercial Lines and Florida Law)General InsuranceMedium
A General Lines Agent is reviewing a commercial property policy for a client. The policy states that the insurer will pay for covered losses, but only up to the policy limit, even if the actual loss exceeds this amount. This principle illustrates the concept of:
- AIndemnity
- BSubrogation
- CAleatory
- DAdhesion
Show answer & explanationAnswer & explanation
Correct answer: A. Indemnity
The principle of indemnity states that the insured should be restored to the same financial position they were in prior to the loss, without profiting from the loss. The policy limit is the maximum amount the insurer will pay to indemnify the insured.
Why the other options are wrong
- B. Subrogation is the insurer's right to pursue a third party responsible for the loss.
- C. Aleatory refers to the unequal exchange of value and the dependence on an uncertain event.
- D. Adhesion refers to the 'take it or leave it' nature of insurance contracts.
Principle of Indemnity
A fundamental principle of insurance stating that in the event of loss, an insured is entitled to no more than the amount of the loss, or to be restored to the same financial position that existed prior to the loss, without profiting from insurance.
- Prevents profiting from a loss
- Basis for property and casualty insurance
- Policy limits and deductibles support this principle
Memory trick: Indemnity: Imagine No Loss, only money to make you whole.