Indemnity is the insurance principle of restoring an insured to roughly the financial position held before a covered loss.
The principle is designed to compensate for loss rather than create a profit from damage. For example, property insurance may pay the value of covered repairs or replacement according to the policy, subject to limits, deductibles, exclusions, and valuation rules. The amount owed depends on the contract and evidence supporting the claim.
Indemnity does not mean every policy pays the full cost of replacing an item. Actual-cash-value coverage may account for depreciation, while replacement-cost coverage follows its own conditions. Liability insurance can also indemnify an insured for covered legal obligations, subject to policy terms.
Indemnity is distinct from a premium, which is the price of coverage, and from subrogation, which can allow an insurer to pursue a responsible third party after paying. Life insurance is often described as benefit-based rather than strictly indemnity-based because a human life cannot be assigned a precise replacement value.