The principle of indemnity is designed to avoid:

The principle of indemnity is a fundamental concept in insurance that seeks to restore the insured to the financial position they held prior to a loss, without allowing them to gain a profit from the situation. This principle is intended to ensure that individuals are compensated for their losses but not overcompensated, which would lead to unjust enrichment. In essence, the indemnity principle helps maintain fairness in the insurance process by ensuring that claims payouts reflect the actual losses incurred rather than providing a financial windfall.

This is why the correct choice identifies the avoidance of giving the insured a profit from losses as a central objective of the principle. By adhering to this principle, insurance aims to encourage responsible risk management and prevent moral hazard, where the insured might take greater risks simply because they would not suffer financially from the consequences of their actions.

While the other options touch upon various aspects of insurance practices, they do not represent the core focus of the indemnity principle. Limitations on specific coverages, higher premiums for high-risk individuals, and policy cancellation due to non-payment pertain to other regulatory and operational facets of insurance but do not encapsulate the essence of why the principle of indemnity exists.