Both the principles of indemnity and insurable interest prohibit what?

The principle of indemnity is a fundamental concept in insurance that ensures an insured party is compensated for their loss but does not profit from it. This principle guarantees that the payment made by an insurer will not exceed the actual loss incurred by the insured, thereby preventing any excess payments.

In conjunction, the principle of insurable interest requires that the insured have a legitimate stake or interest in the subject matter of the insurance. This means that the insured should stand to suffer a financial loss if an event occurs that affects the insured property or life. Together, these principles help to maintain the ethical boundaries of insurance contracts and protect against moral hazard.

Excess payments beyond actual loss would violate these principles, as they could create a moral temptation for insured individuals to exaggerate claims to receive more than what they have lost. By adhering to these principles, insurance aims to be a fair and protective mechanism rather than a means for generating profit from misfortune.