Which type of policy violates the principle of indemnity?

Which type of policy violates the principle of indemnity?

• A. A valued policy.
• B. A personal articles floater policy.
• C. A commercial crime policy.
• D. A mono-line policy.

Answer: (A)

Indemnity means the insurer pays only what’s needed to restore the insured to their preloss financial position, not to provide a windfall. A valued policy fixes the payout at a stated amount when a loss occurs, regardless of the actual value of the property or the size of the loss. If the item is worth less than the stated value, the insured could receive more than the loss, which violates the indemnity principle. That’s why a valued policy is the type that breaks indemnity. Other policy forms generally align payouts with actual loss or current value, preserving indemnity: a personal articles floater is typically designed to reflect appraised or replacement value, a commercial crime policy reimburses actual losses, and a mono-line policy covers a single line of coverage without fixing a guaranteed payout independent of loss.

Indemnity means the insurer pays only what’s needed to restore the insured to their preloss financial position, not to provide a windfall. A valued policy fixes the payout at a stated amount when a loss occurs, regardless of the actual value of the property or the size of the loss. If the item is worth less than the stated value, the insured could receive more than the loss, which violates the indemnity principle. That’s why a valued policy is the type that breaks indemnity. Other policy forms generally align payouts with actual loss or current value, preserving indemnity: a personal articles floater is typically designed to reflect appraised or replacement value, a commercial crime policy reimburses actual losses, and a mono-line policy covers a single line of coverage without fixing a guaranteed payout independent of loss.