Which insurance principle ensures that a party does not profit from an insurance claim?

The principle that ensures a party does not profit from an insurance claim is known as indemnity. This principle is fundamental in insurance contracts, mandating that an insured person should only be compensated for their actual loss, restoring them to the financial position they were in before the loss occurred, but without allowing them to gain from the situation.

Indemnity protects against moral hazard, which can lead to individuals acting carelessly if they know they can financially benefit from a loss. It underscores the importance of the insured receiving compensation equal to the loss, ensuring that the value of the claim does not exceed the amount of the loss incurred. This principle applies across various types of insurance, reinforcing the notion that insurance is not a mechanism for profit but rather for risk management.

Other principles like contribution, subrogation, and insurable interest serve different purposes within the insurance framework. Contribution relates to the sharing of loss between multiple insurers when the same risk is covered by more than one policy. Subrogation allows an insurer to recover the amount paid for a loss from the responsible party, while insurable interest ensures that the policyholder has a legitimate stake in the insured asset, thus preventing moral hazard. Each of these principles supports a well-functioning insurance system but does not