Hello viewers! Welcome to our channel! In this video, we will dive deep into the Principle of Indemnity and explain how it works in real-life insurance scenarios. To help you understand this concept better, we’ll go through a practical case study.
Case Study:
A company took a fire insurance policy for ₹5 lakh. After three months, a fire broke out, causing a loss of ₹2 lakh to the insured property. The question is, how much compensation will the company receive, and why?
Answer and Explanation:
According to the Principle of Indemnity, the purpose of insurance is to restore the insured to their original financial position, but not to allow them to profit from the loss. In this case, since the company insured their property for ₹5 lakh but only suffered a loss of ₹2 lakh, the company will only be compensated for the actual loss incurred.
Therefore, the company will receive ₹2 lakh as compensation, which corresponds to the amount of the loss. The Principle of Indemnity ensures that the company is not paid more than the actual value of the loss, which in this case is ₹2 lakh, even though the insured amount was ₹5 lakh.
Watch the video for a detailed breakdown of the principle and its application in real-world situations. We’ll also discuss other important aspects of insurance and how this principle helps in fair claim settlements. Stay tuned for more!