Page 34 - M1_Insurance Introduction Notes

 Indemnity –

The principle of indemnity means that the loss,

and only the loss, is compensated. Insurer has to

indemnify (i.e. pay for the financial loss suffered

by) the insured. At the same time, the insured

should not be paid anything more than the

financial loss suffered by him. In other words, the

insured should not be able to make a profit out of

the loss suffered. The insurance contract is for

compensating the person who experiences a loss so

that he is brought back to the same financial

position as before the loss. The insurance policy

indemnifies or guarantees compensation only for

the amount of loss and for nothing more. One

should note that insurance policies have a sum

insured, which indicates the total value of the risk

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