Principle of Indemnity

The Principle of Indemnity ensures that an insurance payout is designed to compensate the policyholder for financial loss. However, it prevents the insured from profiting from the insurance claim.

What is the Principle of Indemnity?

Indemnity is one of the main Principles of Insurance. Indemnity in insurance refers to the idea that an insurance policy is meant to compensate the policyholder for the financial loss suffered and not provide a means to gain financially. In other words, the insured should be restored to the same financial position before the loss occurred without making a profit.

An example of Indemnity.

For instance, if you have a home insurance policy and your insured property is damaged, the insurance company will compensate you for repairing or replacing the property up to the limit specified in the policy. The purpose is to prevent the policyholder from profiting from the insurance arrangement and to ensure that the compensation is reasonable and directly related to the actual loss.

This principle helps maintain insurance integrity and averts moral hazards where individuals might intentionally cause or exaggerate losses to profit from insurance claims. For more information, check out Guidance on Indemnity and Insurance or call us on 042 935 9090 to see if we can help.