The concept indicating that the insured cannot profit from insurance is known as?

The concept that the insured cannot profit from insurance is known as indemnity. This principle serves as a fundamental guideline within the insurance industry, ensuring that insurance contracts only provide compensation for actual losses suffered by the insured. The goal of indemnity is to restore the insured to their pre-loss financial position, without allowing them to gain any undue advantage or profit from a covered loss. This is particularly important in preventing moral hazard, where an individual might take greater risks when they know they are insured.

Indemnity is crucial in various types of insurance, including property and casualty insurance, as it aligns the interests of both the insurer and the insured. It discourages fraudulent claims and supports the principle of risk management by holding the insured responsible for their own losses up to the limit of the policy.

While the other concepts, such as reduction, overinsurance, and underinsurance, may be related to insurance coverage and risk management, they do not specifically address the notion of preventing profit from insurance payouts. Reduction refers to strategies to minimize risk, overinsurance highlights scenarios where coverage exceeds the actual value at risk, and underinsurance indicates a lack of sufficient coverage, all of which do not encapsulate the core principle of indemnity.