What does the principle of indemnity aim to achieve?

The principle of indemnity is a fundamental concept in insurance that aims to restore the insured to the financial position they were in prior to suffering a loss, without allowing them to profit from the situation. This principle ensures that when a loss occurs, the compensation received by the insured is confined to the actual amount of the loss, thereby preventing any windfall profit from being realized due to an insurance claim.

In the context of insurance, this means that if an individual experiences a covered loss, the insurer is obligated to provide compensation that reflects the actual damages incurred. This approach promotes fairness in the insurance system, as it keeps the insured whole without providing incentives for fraudulent claims or over-insurance.

Understanding the principle of indemnity is crucial for public adjusters as they navigate claims on behalf of policyholders, ensuring that the compensation sought accurately reflects the loss and aids in restoring the policyholder's financial position.