Principles of Risk Management and Insurance, 13th Edition

Summary

• The principle of indemnity states that the insurer should not pay more than the actual amount of the loss; in other words, the insured should not profit from a covered loss.

• There are several exceptions to the principle of indemnity. These exceptions include a valued policy, valued policy laws, replacement cost insurance, and life insurance.

• The principle of insurable interest means that the insured must stand to lose financially if a loss occurs. All insurance contracts must be supported by an insurable interest to be legally enforceable. There are three purposes of the insurable interest requirement:

  • – To prevent gambling

  • – To reduce moral hazard

  • – To measure the amount of loss in property insurance

• In property and casualty insurance, ...