Indemnity

Insurance

Indemnity is the insurance principle that compensation should restore the insured to their pre-loss financial position — no profit, no loss. Indemnity prevents 'over-insurance' — collecting more than the actual loss. Specific applications: replacement cost vs. actual cash value coverage (replacement cost ignores depreciation; actual cash value subtracts it), policy limits on contents and dwelling, deductibles preventing minor claim incentives. Health insurance is typically indemnity-based — paying actual medical costs, not flat amounts. Disability insurance limits are designed to disincentivize staying out of work. Understanding indemnity helps when negotiating claim settlements and choosing coverage types.