Ron Sundburg Insurance August 1, 2011
This research is being submitted on August 1, 2011, for Ron Sundburg BU307/RM13011 Section 02 Insurance Summer 2011 by Yolanda Johnson.
What is indemnity? Indemnity insurance provides compensation against the actual costs that are incurred by the insured, non-indemnity insurance pays a predetermined fixed amount of compensation on occurrence of a claim, regardless of the costs incurred. Indemnity specifies that the insured should not collect more than the economic value of a loss. The insured should be restored to approximately the same financial position that existed before the loss occurred.
This states that insurers pay no more than the actual loss suffered.
The purpose of an insurance contract is to leave you in the same financial position you were in immediately prior to the incident leading to an insurance claim. An example, when your old Chevy was stolen, you can't expect your insurer to replace it with a brand new Mercedes-Benz. In other words, you will be remunerated according to the total sum you have assured for the car. Insurers generally are not free to write any contract they choose, are not free to charge any price they choose, and, for some types of personal insurance, must accept insured they did not freely choose (Dorfman, 2007). Generally this principle is applied in insurance where the loss suffered by the insured is measurable in terms of money. It does not apply to insurance of persons where it is not possible to measure the financial loss caused by the death of the insured or bodily injury sustained by them.
Replacement cost insurance is another exception to the principle of indemnity. Under replacement cost coverage, the replacement cost of the asset is paid without an allowance for depreciation. Any loss or damage under an