1. Which of the following statements is true about an insurance policy?

A. It is a legal contract between the insurer and the insured.

B. It is solely based on verbal agreements.

C. It does not require any premium payments.

D. It can be canceled by the insured without any consequences.

Answer: A. It is a legal contract between the insurer and the insured.

Rationale: An insurance policy is a legal contract that outlines the terms and conditions of

the insurance coverage, including the responsibilities and obligations of both parties.

2. What is the purpose of the principle of indemnity in insurance?

A. To provide unlimited compensation to the insured.

B. To prevent the insured from receiving more than the actual amount of loss.