What does indemnity refer to in insurance terms?

Indemnity in insurance refers to the principle of making the insured party whole after a loss occurs. This means that when a claim is filed, the insurer provides compensation for the damages or losses incurred, restoring the insured to the financial position they were in prior to the loss. The primary goal of indemnity is to ensure that insured individuals do not profit from their insurance policies; instead, they receive an amount that corresponds to their actual loss or damage.

This concept is foundational to many types of insurance, emphasizing fairness and protecting against financial hardship brought about by unforeseen events. It reflects the insurance industry's role in risk management, where protection is offered to mitigate the impacts of losses rather than to create a financial gain. This understanding of indemnity aligns with the ethical framework of insurance, which is based on providing support and assistance in times of need without leading to unjust enrichment of the policyholder.