General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 3/5
Under the principle of indemnity, health insurance benefits are generally designed to reimburse actual covered expenses rather than allow the insured to profit. Which of the following is an exception to the strict indemnity principle?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Hospital income (hospital indemnity) policies are 'valued' contracts: they pay a stated, fixed benefit for each day of hospitalization without regard to the actual expenses incurred. Because the benefit is agreed upon in advance and is not tied to the actual loss, such policies are an exception to strict indemnity — they can pay more or less than the insured's real cost. This is why the insured may collect the stated amount without proving the dollar amount of the loss.
Why the other options are wrong
- B) An 80% coinsurance plan reimburses a percentage of actual covered charges; it follows the indemnity principle.
- C) A deductible is a retained layer of loss borne by the insured; it does not pay beyond the actual loss and is consistent with indemnity.
- D) An HMO's prepaid service model provides care rather than a fixed payment independent of the loss.
Memory hook
Valued policies pay the sticker price, not the bill. Fixed daily benefit = exception to make-whole.