Indemnity is the legal and insurance principle that a claimant should be restored to the financial position they were in before a loss — no better, no worse. Most property and casualty policies are indemnity contracts; life insurance is not (it pays a fixed benefit regardless of actual economic loss).
The principle of indemnity underlies most property and liability insurance. When you suffer a covered loss, the insurer's obligation is to restore you to your prior financial position — not to enrich you. This principle prevents [[claim]] inflation and moral hazard (the risk that insurance incentivizes reckless behavior). In practice, indemnity shapes how claims are valued. Actual Cash Value (ACV) policies pay replacement cost minus depreciation — the true 'indemnity' value of a used asset. Replacement Cost Value (RCV) policies pay the cost to replace at today's prices, which technically goes beyond strict indemnity; insurers charge a higher [[insurance-premium]] for this broader benefit. In commercial contracts and leases, indemnification clauses allocate responsibility for third-party claims between parties. A landlord requiring a tenant to 'indemnify and hold harmless' the landlord is shifting liability for tenant-caused losses to the tenant. These contractual indemnity provisions interact with commercial liability policies — which is why reviewing contract indemnity language alongside insurance coverage is essential for business owners.
ACV (actual cash value) pays the depreciated market value of the damaged item — true indemnity. Replacement cost pays what it costs to replace with a new comparable item. RCV policies pay more at claim time but carry higher premiums.
Correct. Receiving more from a claim than your actual financial loss is called unjust enrichment, which violates the indemnity principle. Insurers can seek recovery if overpayment occurred (subrogation).