Registered Insurance Brokers of Ontario (RIBO) Practice Exam

The term "Indemnity" in the context of insurance is best understood as the principle of compensating the insured to restore them to the financial position they held prior to the loss. This ensures that they do not profit from an insurance claim but rather receive compensation that reflects their actual loss. The aim is to provide financial protection against unexpected events without resulting in any enrichment for the insured beyond their original loss.

Restoring property to its original state focuses on physical damages rather than the overall financial impact, which is a narrower aspect of indemnity. Establishing a deductible clause relates to the part of a claim the insured would pay out-of-pocket before insurance kicks in, which is not directly tied to the essence of indemnity itself. Lastly, paying out only the policy limit concerns a cap on the compensation provided, which may not fully address the actual financial loss experienced by the insured. Ultimately, the focus of indemnity is on ensuring complete financial restitution up to the extent of the loss incurred.