Legal Definitions - indemnity principle

Definition: The indemnity principle is a doctrine in insurance that states that an insurance policy should not provide a benefit that is greater in value than the actual loss suffered by the insured.

Example: Let's say that John's car is insured for $10,000. If John gets into an accident and the cost of repairs is $5,000, the insurance company will only pay $5,000 to cover the cost of repairs. This is because the indemnity principle ensures that John is only compensated for the actual loss he suffered, which is $5,000.

Explanation: The indemnity principle is designed to prevent people from profiting from insurance claims. Insurance is meant to protect individuals from financial loss, not to provide them with a windfall. By limiting the amount of compensation to the actual loss suffered, the indemnity principle ensures that insurance remains a tool for risk management rather than a means of making a profit.