Indemnity

AAA

DEFINITION of 'Indemnity'

Compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability for damages. The concept of indemnity is based on a contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party. A typical example is an insurance contract, whereby one party (the insurer) agrees to compensate the other (the insured) for any damages or losses, in return for premiums paid by the insured to the insurer.

INVESTOPEDIA EXPLAINS 'Indemnity'

Indemnity may be paid in the form of cash, or by way of repairs or replacement, depending on exactly what is spelled out in the indemnity agreement.


For example, in the case of home insurance, the homeowner pays insurance premiums to the insurance company in exchange for the peace of mind of knowing that he or she will be indemnified if the house sustains damage from fire, natural disasters or other perils specified in the insurance agreement. In the unfortunate event that the home is damaged significantly, the insurance company will undertake to bring it back to its original state, either by means of repairs undertaken by its authorized contractors, or by reimbursing the homeowner for expenditures incurred in association with such repairs.

RELATED TERMS
  1. Broad Evidence Rule

    A rule outlining the guidelines insurers must go about determining ...
  2. Financial Guarantee

    An non-cancellable indemnity bond that is backed by an insurer ...
  3. Commercial Property/Casualty Market ...

    A survey of its members in the Council of Insurance Agents & ...
  4. Life Insurance

    A protection against the loss of income that would result if ...
  5. Portfolio Insurance

    1. A method of hedging a portfolio of stocks against the market ...
  6. Hazard Insurance

    Insurance that protects a property owner against damage caused ...
RELATED FAQS
  1. What is the usual profit margin for a company in the insurance sector?

    The best estimates of the average insurance company net profit margin are between 3 and 8%, with a likely median average ... Read Full Answer >>
  2. What are the benefits of high net worth insurance?

    High-net-worth individuals (HWNI) face unique insurance challenges and tend to gravitate towards different insurance products. ... Read Full Answer >>
  3. How does the risk of investing in the insurance sector compare to the broader market?

    Due to economic, demographic and interest rate trends, there is less risk when investing in the insurance sector compared ... Read Full Answer >>
  4. What price-to-book ratio is considered average in the chemicals sector?

    You can use Microsoft Excel to calculate the loan-to-value ratio if you have the mortgage amount and appraised value of a ... Read Full Answer >>
  5. How does an insurance broker make money?

    An insurance broker makes money off commissions from selling insurance to individuals or businesses. Most commissions are ... Read Full Answer >>
  6. Which ETFs that track the insurance sector are most popular?

    The most popular ETFs that track the insurance sector are the SPDR S&P Insurance ETF (KIE), iShares US Insurance ETF ... Read Full Answer >>
Related Articles
  1. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  2. Home & Auto

    Cover Your Company With Liability Insurance

    Every business is susceptible to legal action. Find out how to protect yours.
  3. Options & Futures

    Let Life Insurance Riders Drive Your Coverage

    Find out how these additional benefits can help you customize your policy.
  4. Home & Auto

    Protect Your Company From Employee Lawsuits

    Understanding employment practices liability insurance is easy, once you know the basics.
  5. Home & Auto

    10 Must-Know Questions To Ask A Home Seller

    To get a sense of what the home you're considering buying is really like, it helps to talk to the seller.
  6. Insurance

    Homeowners Insurance Losers: States That Pay Most

    Which states charge you the most for homeowner's insurance? Hint: They're regularly featured on the Weather Channel.
  7. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  8. Insurance

    Which States Have the Cheapest Home Insurance?

    You can't choose where you live by its insurance rates. But if you did, these are the states to pick.
  9. Insurance

    Insurance Myths Involve Houses, Cars & Big Crashes

    Any confusion over what to buy or how to use a product can end up being costly, but when it comes to insurance, misunderstandings can cost thousands.
  10. Investing Basics

    Rental Property: Getting Rich Means Taking It Slowly

    I have two second cousins who serve in the military. We don't always talk much, though. The age gap can be a roadblock and those boys are always traveling

You May Also Like

Hot Definitions
  1. Fracking

    A slang term for hydraulic fracturing. Fracking refers to the procedure of creating fractures in rocks and rock formations ...
  2. Mixed Economic System

    An economic system that features characteristics of both capitalism and socialism.
  3. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  4. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  5. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  6. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
Trading Center