Question

The insurance contract is considered a contract of indemnity because:

A. an insured may collect no more than the limit of liability stated in the declarations
B. an insured may collect no more than the amount required to restore him/her to the same financial condition he/she was in prior to a loss
C. the insured may collect no more than 10% more than his/her insurable interest
D. in cases of total loss, an insured can collect the appraised value of the property"

Answer 1

The insurance contract is considered a contract of indemnity because an insured may collect no more than the amount required to restore him/her to the same financial condition he/she was in prior to a loss.

Step-by-step explanation:

The insurance contract is considered a contract of indemnity because the insured may collect no more than the amount required to restore him/her to the same financial condition he/she was in prior to a loss. This means that the purpose of insurance is to compensate the insured for the actual loss suffered, rather than providing an opportunity for profit. For example, if a car is insured for its actual cash value and it is stolen, the insured will receive an amount equal to the car's value before the theft, not more.