Which of the following best meets the test of the "Principle of Indemnity"?

The Principle of Indemnity mandates that insurance should restore the insured to their financial position prior to a loss, without providing any profit or gain from the insurance coverage. Requiring the policyholder to carry insurance to value aligns perfectly with this principle because it ensures that the amount of insurance coverage matches the actual value of the property. By having insurance that accurately reflects the full value, the policyholder is protected against loss and can be compensated completely without excess, adhering to the essence of indemnity.

In contrast, overpayment of a claim contradicts the principle as it would result in providing the insured with more than what they lost. Providing the full market value for a lost item may seem aligned with indemnity, but unless the policy was set to that amount, it could potentially lead to a profit scenario, which again deviates from indemnity principles. Lastly, adjusting claims based on depreciation can complicate the situation since it may not fully compensate the insured for their loss, as it factors in depreciation rather than focusing solely on restoring the insured to the financial position they were in before the loss occurred. Thus, the focus on requiring insurance to value stands out as the option that best meets the Principle of Indemnity.