PSI Ohio Insurance Practice Exam 2026 - Free Ohio Insurance Practice Questions and Study Guide

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.