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Simple English definitions for legal terms
indemnity principle
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A quick definition of indemnity principle:
The indemnity principle is a rule in insurance that says an insurance policy should only pay for the actual loss suffered by the insured. This means that the benefit received from the insurance policy should not be more valuable than the loss experienced. For example, if someone's car is damaged in an accident, the insurance policy should only cover the cost of repairing the car, not the cost of a brand new car.
A more thorough explanation:
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.