What is the meaning of indemnity in insurance?
Asked by: Maximillia Heidenreich V | Last update: December 30, 2025Score: 4.4/5 (71 votes)
What is an example of indemnity?
One practical example is an agent-principal business relationship. When the principal refuses to accept the goods that the agent supplies him, the agent can sell them to others; however, if the agent sustains a loss while selling, the principal is obligated to pay for it.
What is meant by indemnity in insurance?
Indemnity is one party's promise to compensate another for potential losses or damages, while indemnification is the act of compensating another party after a loss has occurred. An indemnity contract protects the indemnitee from liability and holds them harmless.
Who pays the indemnity?
Indemnity payments are (1) losses paid or expected to be paid directly to an insured by an insurer for first-party (e.g., property) coverages or on behalf of an insured for third-party (e.g., liability) coverages, or (2) payments made by the indemnitor under a hold harmless clause on behalf of the indemnitee.
Is indemnity good or bad?
The indemnity clause is a vital element in many agreements, especially commercial contracts. By helping allocate risk among the contracting parties, these clauses provide more equity and risk avoidance to the contracting process.
What Is the Meaning of Indemnity Insurance? : Insurance Tips & Answers
What does indemnity insurance pay for?
Indemnity insurance helps pay medical bills. You may cover some costs yourself first (deductible). After that, you'll share some of the costs with the insurance company (co-insurance). You can go to any doctor or hospital and insurance will reimburse you.
What is the purpose of an indemnity?
Indemnity is a comprehensive form of insurance compensation for damage or loss. It amounts to a contractual agreement between two parties in which one party agrees to pay for potential losses or damage caused by another party.
What are the disadvantages of indemnity insurance?
Indemnity plans may limit the number of times you can access a particular service and the total amount of benefits you can receive in a year. So, an indemnity plan might not provide enough coverage for a serious health condition.
Who is the person who gives indemnity?
An indemnitor can indemnify for damages, which typically do not arise until the end of a case or resolution, or they can indemnify for liabilities, which are broader and require the indemnitor to pay as soon as the indemnitee becomes liable.
How does indemnity insurance work?
Professional indemnity insurance protects you against claims for loss or damage made by clients or third parties as a result of the impact of negligent services you provided or negligent advice you offered. Compensation claims can be brought against you even if you provided a service or offered advice for free.
What is the rule of indemnity in insurance?
The rule of indemnity, or the indemnity principle, says that an insurance policy should not confer a benefit that is greater in value than the loss suffered by the insured. Indemnities and insurance both guard against financial losses and aim to restore a party to the financial status held before an event occurred.
Who is liable when an insured suffers a loss?
In general, the insurer is liable for the losses covered by the insurance policy, up to the limits of the policy. The insurer is also responsible for investigating the claim, determining the cause of the loss, and assessing the extent of the damages.
How long does indemnity insurance last?
Indemnity insurance can last indefinitely since it is tied to the property, not the owners. Any new owners will continue to be covered. However, this may change if the property significantly increases in price.
Is indemnity a risk?
Indemnities are contractual promises to reimburse another party, on a pound for pound basis, in respect of a specific type of liability, should that liability arise. They are used in contracts as a way of allocating certain types of risk between the parties.
Is indemnity a claim?
An indemnity claim arising from a clause in a contract creates a promise by a person to: compensate another person. for any loss or harm which comes to them, from an event or series of events.
How much is indemnity insurance?
How much does indemnity insurance cost? Costs for indemnity insurance vary. It depends on the specific policy and level of cover required. Typical costs range from £20 up to around £300 for cover of a few tens of thousands of pounds.
Who pays for indemnity claim?
In most cases, it will be you, as the seller of the property, who pays the insurance premium. This is on the basis that you are selling a property that potentially has various issues. However, in some cases, the parties will split the premium between them.
Is indemnity a good thing?
Indemnity is an important element of contracts because it is designed to punish a party who breaches the contract. Learn about the different types of indemnity and why they're essential.
What is the difference between insurance and indemnity?
Both indemnification and insurance transfer risk and guard against financial losses, but they do so differently: Indemnification transfers risk between contracting parties through a non-insurance agreement. Insurance transfers risk from one party to another in exchange for payment.
What is not covered by indemnity insurance?
Professional indemnity insurance policies will not cover intentional wrongdoing, regulatory fines and penalties, physical injuries, property damage, contractual disputes and employee disputes.
Is it worth getting indemnity insurance?
The issues covered by indemnity insurance are usually at the lower end of the risk spectrum, but should the worst happen they would be costly to rectify. Many buyers seek out indemnity insurance in order to allow their purchase to proceed and give themselves peace of mind against the worst case scenario coming to pass.
What does an indemnity plan cover?
For instance, if you suffer a sudden injury or acute illness while traveling, you can use your indemnity plan to cover emergency room visits, hospital stays, and related medical treatments. The flexibility of indemnity insurance provides peace of mind, knowing you can access emergency care wherever you are.
What is an example of indemnity insurance?
Example Claim: A fire breaks out in a rented apartment due to faulty wiring. The tenants sue the landlord for damages to their belongings and relocation costs. Property indemnity would cover the landlord's liability, providing for the legal defense and any compensation awarded.
When should an indemnity be given?
Many indemnities are created by contract, under which the paying party promises to pay an identified loss if a particular trigger event happens (usually an event over which the paying party has control). The trigger for payment and the amount payable depend on the contract's drafting and interpretation.
Why would you indemnify someone?
Indemnification refers to the broad concept of one party compensating another for losses, damages, or liabilities, usually due to third-party claims. It's an agreement that safeguards one party against the financial impacts of specific actions or events.