Which term describes the principle that an insured should not profit from a loss?

The principle that an insured should not profit from a loss is best described by the term indemnity. This principle is fundamental to insurance contracts, which are designed to restore the insured to their financial position prior to the loss, without allowing them to gain a profit from the insurance payout. The indemnity principle ensures that the compensation received is not more than the actual loss incurred, thereby preventing any financial gain resulting from claiming insurance.

In practice, this means that when a loss occurs—for example, damage to property—the insurer compensates only for the actual value of the loss, as determined by the terms of the policy and the facts of the incident. This concept is crucial in maintaining the integrity of the insurance system and ensuring fairness among policyholders.

Contribution refers to the process where multiple insurers share the responsibility for a claim when a risk is covered by more than one policy. Insurable interest is a requirement that the policyholder must have a legitimate stake in the insured item, ensuring that they would suffer financially if a loss occurred. Subrogation allows the insurer to pursue third parties responsible for a loss to recover the amounts paid out to the insured. While each of these terms is important in the insurance context, they do not define the principle that an insured should not