Indemnity or Indemnification

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Indemnity or Indemnification

Indemnity in literal terms is a contractual agreement in which one party guarantees compensation for actual or potential losses or damages sustained by another.

Indemnity as basically as it can be described is the restoration to approximate previous financial condition; no better or worse. This can include repairs to the property, reimbursement for additional living expenses, rental cars, hotels, or any cost directly associated with a loss as allowed under the policy.

Let’s look at an example of the indemnity principle:

Jack causes Jane  $1500 in car damage

Jane collects $1500 from her insurance company

Jack also pays Jane $1500.

Jane has violated the Principle of Indemnity as she profited from the loss.