What principle ensures the insured is returned to the same financial position as prior to the loss?

The principle that ensures the insured is returned to the same financial position as prior to the loss is known as indemnity. This principle is a fundamental concept in insurance that aims to prevent the insured from profiting from a loss. Instead, indemnity ensures that, after a loss, the insured is made whole again, meaning they will be restored to the financial state they were in right before they experienced the loss.

Indemnity operates under the assumption that the insured should not suffer financially from circumstances that trigger insurance coverage, and it establishes limits such as actual cash value or replacement cost that dictate how much will be paid in the event of a claim. This principle is integral in maintaining fairness within the insurance system, as it supports the notion that the primary purpose of insurance is to safeguard against financial hardship rather than serve as a means for monetary gain.

In contrast, the other principles mentioned do not serve the same purpose in ensuring a return to pre-loss financial conditions. Representation deals with the accuracy of information provided by the insured at the time of application. Subrogation allows the insurer to pursue recovery from a third party responsible for the loss after compensating the insured. Restoration is not a standard term typically used in insurance principles.