PSI Ohio Insurance Practice Exam

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Study for the Ohio Insurance Test. Prepare with flashcards and multiple choice questions, each question accompanied by hints and explanations. Excel in your exam!

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What is the main goal of an indemnity contract?

Provide additional benefits beyond covered losses
Ensure profit for the insurance company
Restore the insured to their pre-loss financial condition
Offer fixed benefits regardless of loss

The correct answer is: Restore the insured to their pre-loss financial condition

The main goal of an indemnity contract is to restore the insured to their pre-loss financial condition. Indemnity contracts are designed to provide compensation for actual losses incurred, thereby ensuring that the policyholder does not profit from their insurance coverage but instead is put back in the financial position they were in prior to the loss. This principle helps to maintain the integrity of insurance by preventing moral hazard, which can occur if individuals are incentivized to cause losses in order to receive payment. The contract's focus is on covering actual expenses or losses rather than offering additional benefits, guaranteeing profit for the insurer, or providing fixed benefits that do not correspond to specific losses experienced. Thus, the intent is clearly towards financial restoration rather than any other aspects of financial gain or fixed payouts.