What is the principle of indemnity in insurance?

The principle of indemnity is fundamental in the insurance industry, primarily designed to ensure that an insured person is restored to the financial position they occupied before a loss occurred. This principle emphasizes that the insured should not profit from their insurance coverage but instead receive compensation that covers their loss, which aligns with the idea of restoring the extent of the loss.

In practical terms, this means that if a loss occurs, the insurance company will pay out the amount necessary to repair or replace the damaged property or compensate the insured for the loss, without resulting in any financial gain beyond what was lost. This approach helps maintain fairness within the insurance system and prevents fraudulent claims, ensuring that individuals only receive what they have lost and no more.

Understanding this principle is vital for public adjusters, as they navigate claims and work towards fair settlements for policyholders based on actual losses incurred.