Indemnity

Indemnity means making someone whole. As an insurance principle, it says a policy should put the insured back where it stood before the loss, without letting it profit. The idea explains many policy rules. Property is paid at actual cash value unless you buy replacement cost. You need an insurable interest to collect. Other-insurance clauses stop two policies paying the same loss twice. subrogation lets your insurer recover from the party at fault, so that you cannot be paid by both.

Say a retailer's $40,000 of inventory is destroyed and the policy limit is $100,000. The recovery is the loss, adjusted for deductible and valuation terms, not the limit. Life insurance is the main exception, since a death benefit is not measured by loss.

The word also has a second meaning in contracts. An indemnity clause is a promise by one party to cover another's losses or liability, as in a lease or subcontract. The insurer's own promise to pay a covered loss is the duty to indemnify, which differs from the duty to defend. In health insurance, an indemnity plan pays set cash amounts or a share of billed charges rather than using a network. Context tells you which meaning applies. The guides on indemnification and hold harmless clauses and your insurance and replacement cost vs actual cash value for business property cover each.