| Indemnity is arguably the most fundamental | | | | because one owner's interest in the property is |
| principle of insurance. This principle plays a critical | | | | limited by his share of ownership. |
| role in general insurance. Indemnity is easily applied | | | | Where indemnity is concerned, the insurer has |
| to losses that are quantifiable. Indemnity is | | | | leverage in choosing the method of |
| monetary compensation that aims to return the | | | | reimbursement. The options available, where |
| insured to the same financial position he enjoyed | | | | indemnity is concerned, include cash, repair, |
| before the loss occurred. Life insurance and | | | | replacement or reinstatement. Indemnity is limited |
| personal accident policy are therefore not | | | | by policy limits and the level of the sum insured. |
| contracts of indemnity. A dollar value cannot be | | | | The application of excess and average help |
| easily placed on life and limb. However, the idea | | | | maintain the integrity of the indemnity principle. |
| behind indemnity is used for financial underwriting | | | | The application of average dictates that a |
| where life insurance is concerned. | | | | settlement must be proportional to the ratio |
| Insurance in general covers pure risks. Pure risks | | | | between the sum insured and the total value of |
| differ from speculative risks in that they do not | | | | the risk covered. It is a technique used to combat |
| involve gain. Financial underwriting in life insurance is | | | | under-insurance. Assume that you insure your |
| a means of ensuring that people do not acquire | | | | home for $500,000.00 and the market value is |
| life coverage that is significantly higher than their | | | | $1,000,000.00. If a loss estimated at $200,000.00, |
| future economic value. As such life insurers limit | | | | the insurer would not reimburse the full extent of |
| the amount of coverage you can have, based on | | | | the loss with the application of average. The |
| your income. The coverage amount is typically | | | | settlement would be $100,000.00, since only half |
| thirty times one's annual income. This is one way | | | | the value was insured. Excesses perform the |
| the underlying principle of indemnity influences life | | | | same role as deductibles in health plans. An |
| insurance coverage, even though it is not directly | | | | excess is an amount of each claim that is borne |
| applied to it. | | | | by the insured and not covered by a policy. |
| With contracts of indemnity, a claim must not | | | | In some cases, those who do not understand the |
| exceed the actual loss. Even further to that, a | | | | fundamental principle of indemnity feel unfairly |
| claim cannot exceed the extent of your insurable | | | | treated during the claims process. However, the |
| interest in the insured asset. Let's assume that | | | | application of this principle maintains the integrity |
| two people are co-owners of a property. The | | | | of insuring pure risks. The fact remains that no |
| property is shared equally. One owner is not | | | | one should gain from insurance, even where life |
| entitled to insure more than half the value of the | | | | insurance concerned. |
| property under normal circumstances. That occurs | | | | |