Glossary
What does indemnity mean in insurance?
Indemnity means making good a loss. In insurance, it is the promise to put you back in the financial position you were in just before the loss, no better and no worse. It is why a health policy repays your actual bill, and why it never pays you more than that.
In short
- Indemnity = compensation for an actual loss, up to the sum insured.
- The principle: insurance should never leave you in profit.
- Health, property and liability cover work on indemnity. Life and personal accident pay a fixed benefit instead.
- That is why two health policies don’t both pay the same bill in full, but two accident policies can.
What is the meaning of indemnity?
Indemnity means compensation for a loss you have actually suffered. In Hindi it is often translated as क्षतिपूर्ति. An indemnity policy pays what the loss cost you, up to the sum insured, and no more.
What is the principle of indemnity?
No insurance may leave you better off than before the loss. If it did, insurance would become a way to profit from misfortune. So a hospital bill is repaid at what it cost, and a damaged machine at what it costs to repair or replace.
Which policies work on indemnity, and which don’t?
| Indemnity policies | Benefit policies | |
|---|---|---|
| Examples | Health, property and fire, liability | Life, personal accident |
| What they pay | The actual loss, up to the sum insured | A fixed sum, whatever the loss |
| With more than one policy | The same loss is paid once | Every policy pays its own sum in full |
This is why accident and health cover feel so different at claim time. If an employee dies in an accident, every life and accident policy they hold pays in full, side by side. A hospital bill, on the other hand, can only be repaid once, however many health policies cover it.
What is professional indemnity?
Here indemnity means protection against someone else’s claim. Professional indemnity insurance covers a firm when a client claims that its advice or service caused them a financial loss, including the legal costs of defending the claim. It is also called errors and omissions cover.
Why indemnity matters at claim time
Because the sum insured has to match the real loss. In property insurance, if the sum insured is lower than what it would cost to rebuild and replace, the claim is paid in proportion. Indemnity can only make you whole if the policy was set up to.
Frequently asked questions
What is the meaning of indemnity in insurance?
Indemnity means compensation for an actual loss. The insurer puts you back in the financial position you were in before the loss, up to the sum insured, and no better.
What is the principle of indemnity?
That insurance should never leave the insured in profit. An indemnity policy pays only what the loss actually cost.
Is life insurance an indemnity contract?
No. Life and personal accident insurance are benefit policies: they pay a fixed sum, and every such policy pays in full.
Can two health policies both pay the same bill?
Not in full. Health insurance is indemnity, so the same bill is repaid only once, however many policies cover it.
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A note on this page. Everything here is general information, not insurance, legal, financial or tax advice, and nothing is an offer. How any policy pays depends on its own wording. For advice about your situation, talk to us.