Principle of Indemnity

The dictionary meaning of ‘indemnity’ is ‘the protection or security against damage or loss or security against legal responsibility’. Indemnity may be referred to as a mechanism by which insurers provide financial compensation in an attempt to place the insured in the same pecuniary position after the loss as enjoyed just before it. The literal meaning of the term “Indemnity” is making good the loss. On the happening of the insured event for which the insurance policy is taken up the insured should be replenished the amount of loss.