Q.Which of the following statements correctly describes the Principle of Indemnity?
(A) It applies equally to Life Insurance and General Insurance
(B) It entitles the insured to recover more than the actual loss suffered, as compensation for inconvenience
(C) It limits the insured's recovery strictly to the actual financial loss suffered, and applies to General Insurance but not Life Insurance
(D) It requires the insured to disclose every material fact before the policy is issued

Indemnity caps recovery at the actual loss suffered, and does not apply to life insurance because a human life has no measurable market value to cap a claim at.

Check each option against both halves of the rule: the AMOUNT payable, and WHICH type of insurance it applies to.

Under the Principle of Indemnity, the insured is compensated only to the extent of the actual financial loss suffered, never more, so that insurance is never a source of profit. This principle applies fully to General Insurance (Fire, Marine, Motor, and so on) but does NOT apply to Life Insurance, because a human life has no measurable market value that a claim could be capped at, and death is a certain event rather than a possible loss.

Option-by-option analysis:

• (A) Incorrect — Indemnity does NOT apply to Life Insurance, which is a contract of assurance instead.
• (B) Incorrect — this is the opposite of indemnity; indemnity specifically PREVENTS recovering more than the actual loss.
• (C) Correct — this states both halves of the rule correctly.
• (D) Incorrect — this describes Utmost Good Faith, not Indemnity.