Q.Which principle of insurance ensures that the insured is compensated only for the actual financial loss suffered, and not more? (A) Contribution
(B) Proximate Cause
(C) Mitigation
(D) Indemnity

Life insurance is a contract of assurance, not indemnity. Because a human life has no measurable money value, the principle of indemnity does not apply to it, though insurable interest and utmost good faith still do.

Insurance contracts rest on a set of basic principles. Three of them appear in this question:

• Insurable interest — the insured must stand to suffer financially if the event insured against occurs. In life insurance a person has insurable interest in their own life and in the life of a spouse or dependant, so this principle does apply.
• Utmost good faith (uberrimae fidei) — both parties must disclose all material facts honestly (age, health, habits, family history). This principle also applies to life insurance.
• Indemnity — the insurer restores the insured to the same financial position as before the loss, paying only the actual loss and no more. This prevents the insured from making a profit out of a loss. …

The principle of indemnity does not apply to life insurance.

The principle of indemnity states that insurance compensates the insured only for the actual monetary loss suffered — the insured should neither profit nor lose from the event. This principle works for property insurance because the loss can be valued in money.

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Insurance helps to minimize/reduce business risks, not to increase them.

Insurance is a contract in which the insurer agrees to compensate the insured against a possible future loss, in return for a premium.

How insurance minimizes risk:

• It transfers the financial burden of a loss from the businessman to the insurance company.
• Losses due to fire, theft, accident, natural calamities, etc. are compensated, giving financial security. …

The correct sequence is Taking the policy, Accident, Claim.

The insurance process follows this natural order:

1. Taking the policy – The insured first enters into an insurance contract and pays the premium.
2. Accident – During the policy period, an unexpected event/loss (accident) occurs.
3. Claim – The insured then applies to the insurance company for compensation for the loss suffered. …