What is a key aspect of a title insurance policy regarding the compensation of losses?

A key aspect of a title insurance policy is that it operates on the principle of indemnity, which means that the compensation paid out is limited to the actual losses incurred by the insured. This principle ensures that the insured is restored to their financial position prior to the loss but does not allow for an amount that exceeds those actual damages.

In the context of title insurance, this means that if a defect in the title leads to a financial loss, the insurance company will only reimburse the amounts that directly relate to that loss, up to the policy limit. This protects both the policyholder and the insurer from excessive payouts that could arise if compensation exceeded the losses incurred.

The other choices do not accurately reflect how title insurance operates. For instance, title insurance does not cover "all losses without exception," and claims are generally not denied arbitrarily. Each claim is evaluated based on the terms of the policy and the nature of the loss. Additionally, payments exceeding the property value could lead to financial imbalances and are against the general principle of indemnity in insurance.