What is the purpose of Indemnity in insurance?

The purpose of indemnity in insurance is fundamentally about providing financial protection and restoring the insured to their pre-loss financial condition. Indemnity operates under the principle that an insurance contract should not provide the insured with a profit but rather compensate them for their loss, allowing them to recover without financial detriment.

When a covered loss occurs, the insurer pays out a claim based on the actual financial loss suffered, ensuring that the individual's financial state is made whole again. This principle is critical in avoiding overcompensation and deterring individuals from seeking insurance to gain financially from their misfortune.

While options regarding legal support, premium determination, and limiting coverage amounts touch on aspects of insurance, they do not directly relate to the core principle of indemnity, which focuses primarily on restoring the financial position of the insured after a loss.