Indemnity Basis

What Does Indemnity Basis Mean?

An indemnity basis refers to the amount of money an insurance company will pay for a claim, based on the terms outlined in the policy. This means that the insurance company may pay for the damage or loss either in full or in part, depending on the specific terms of the insurance contract. This is also how most standard auto policies work, which is why indemnity insurance for cars pays out the value of the damage rather than a fixed sum agreed in advance.

Insuranceopedia Explains Indemnity Basis

Indemnity in insurance is a concept based on the principle that a person should only be compensated for a loss, not profit from it. The indemnity basis in insurance ensures that this principle is upheld in the insurance policy. When a person insures a risk, the insurer determines the amount of money to be paid out if the risk occurs. Ideally, this amount is aligned with the cost of the loss and does not exceed it. One common situation where this principle leaves the policyholder short is when a totaled car is worth less than what the owner still owes on the loan, which is the shortfall that GAP insurance covers. How an insurer calculates the indemnity payout can also vary in practice, which is one of the things worth comparing when looking at the best car insurance companies.