What provision states that if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost?

The provision that states if a policy allows for greater benefits than the financial loss incurred, the insured may be compensated only for the amount lost is known as indemnity. This principle is fundamental to insurance because it ensures that the insured is made whole after a loss but does not profit from the insurance payout. Indemnity aims to restore the policyholder to their pre-loss financial position without providing any excess financial benefit.

In practice, this means that if the insured suffers a loss, they can claim compensation up to the amount of that loss, but not more. Thus, the amount they receive will not exceed the actual economic damage they experienced. This principle helps maintain fairness in the insurance system and prevents moral hazard where individuals might otherwise take excessive risks knowing they are covered beyond their actual losses.

In contrast, subrogation refers to the insurer's right to pursue recovery from third parties responsible for a loss, waiver involves the voluntary relinquishment of a known right, and reimbursement typically implies repayment for expenses incurred rather than addressing the compensation process for losses under a policy. Understanding these principles helps clarify the indemnity aspect and its relevance in insurance contracts.