PRINCIPLE OF INDEMNITY


PRINCIPLE OF INDEMNITY
• Indemnity means guarantee or assurance to place the insured in exactly the same position by which he was immediately before the happening of the uncertain event. The insurer undertakes to make good the loss.
 It is applicable to fire, marine and other general insurance.
•Under this is the insurer agreed to pay the insured for the specific loss suffered.
Indemnity means security, protection and compensation given against damage, loss or injury. In accordance with the principle of indemnity, an insurance contract is signed limited to getting protection against unpredicted financial losses arising as a result of future uncertainties. Insurance contract is not made to make profit else its sole purpose is to give compensation in case of any damage or loss.
In a insurance contract, the total amount of compensations paid is in proportion to the incurred losses. The level of compensations is limited by the quantity assured or the specific losses, whichever is less. The compensation must not be less or even more than the specific damage. Compensation is not paid if the specified loss doesn't happen because of particular reason during a particular time period. Thus, insurance is limited to giving protection against losses and not to make profit.
However, in case of life insurance, the principle of indemnity doesn't apply because the worth of human life cannot be measured when it comes to money.




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