8. Restoring a policy holder to his pre-loss financial position means A. Contribution B. Indemnity C. Goodwill D. Liquid Asset 9. Insurance is best suited to risk with A. high frequency and low loss severity. B. low frequency and high loss severity. C. minimum frequency and no loss severity. D. high frequency and high loss severity.

The concept of indemnity is a cornerstone of insurance, rooted in the idea of fairness. Essentially, it means that an insured party should be restored to the financial state they were in before the loss event occurred, without profiting from the claim. This principle prevents individuals from exploiting their insurance coverage for financial gain due to unfortunate incidents, ensuring that payouts represent no more than the actual loss sustained. In terms of how insurance applies realistically, it shines brightest when managing risks that are infrequent but have the potential for significant financial consequences—think natural disasters or major accidents. By understanding the relationship between frequency and severity, insurance companies can design policies to protect against catastrophic events while keeping premiums manageable, making it easier for individuals to safeguard their financial futures.