The principle of indemnity emphasizes that on the happening of a loss. As per the principle, the insured shall get neither more nor less than the actual amount of loss sustained. This, of course, is always subject to the limit of the sum insured and also subject to certain terms and conditions of the insurance policy. Moreover, the application of principle of indemnity varies between insurance policies.
Application Of Principle Of Indemnity In Various Insurances :
Application in Life Insurance : EXCEPT life and personal accident insurance, all insurance contracts are contracts of indemnity. Life and personal accident insurance are NOT contracts of indemnities simply because life or limb cannot be valued in terms of money. Legally, therefore, these two types of insurances have been kept outside the scope of the principle of indemnity.
In theory, any person can open any number of policies for any amount and at the time of claim all such policies must pay all the sum-insured under all such policies. Even though this is the position of law, nevertheless, insurers would always try to put a check on the possible moral hazard by restricting the sum-insured on the financial capability and standing of a man, that is to say, his continued premium payment capacity.
It has to be clearly conceived here that such a check is purely an underwriting check so that the principle of indemnity is not completely shattered, but such a check is not a legal check, that is to say, from the legal point of view such policies are indeed not contracts of indemnities and there is no reason why a man cannot legally get any number of policies for any amount.
Application in Other Insurance : Apart from life and personal accident insurances, ALL other types of insurances are contracts of indemnities. Therefore,the following are said to be the contracts of indemnities-
- Marine Insurance
- Fire Insurance
- Motor Insurance
- EAR (Erection All Risk) Insurance
- IAR (Industrial All Risk) Insurance
- Car Insurance
- Burglary Insurance
- Fidelity Guarantee Insurance
- Employers Liability Insurance
- Public Liability Insurance
- Aviation Insurance
- Products Liability
- Crop insurance
- Live-stock insurance etc. are all contracts of indemnity.