What is the purpose of indemnity in insurance?

The purpose of indemnity in insurance is to restore the victim to their pre-loss position. This principle is fundamental to insurance, as it ensures that the insured is compensated for losses up to the value of their loss, rather than being placed in a better position than they were before the loss occurred. Indemnity prevents the insured from profiting from their insurance policy; it aims to make them whole again after experiencing a loss.

This principle is crucial to maintaining fairness and integrity within the insurance system, as it aligns with the fundamental concept that insurance should provide protection against loss rather than provide a windfall.