The Principle of Indemnity
May 26, 2008Indemnity means the restoration of financial position of the insured after the loss as he enjoyed immediately before the loss. It also means an exact financial compensation. However, the indemnity payable should not exceed the insurable interest or the insured amount, whichever is lesser, at the time of the loss. No one should profit under his insurance policy as a result of his/her misfortune.Indemnity is not applicable to life and personal accident insurance contracts. The reason being it is impossible to provide exact financial compensation for loss of life or limb.
The insurer has the option to provide indemnity in the form of cash, replacement, repair or reinstatement to discourage fraud or suspicious claims.
As defined above, indemnity is the exact compensation. However, it may be reduced due to actual sum insured, insufficient sum insured and policy deductibles. Also, the salvage shall be considered in determining the indemnity.
