How to Understand a Car Insurance Company's Responsibility of Indemnity

All insurance companies are based on the same concept when they provide coverage to you in any realm that insurance coverage is offered, indemnity. This is a word that some people know a lot about and others are not quite sure of. The concept overall is very simple, but it may take a little explaining in order to understand how it is used. The very basic definition that will be explained in greater detail is that indemnity is the principle of getting you back to where you were before your loss occurred.

Many people see insurance as being a way to claim money that you do not have and may not be entitled too, but it can get you ahead of the game. Insurance coverage is not meant to get you bonus money that you didn't have before, it is meant to provide coverage that will get you back on your feet after a loss. This is why so many companies speak of being your friend, neighbor or helping hand when you become their customer.

Here is how the concept of indemnity can be understood with different types of insurance as examples:

Homeowner's Insurance: Let's say that you have a home that is worth $150,000 and you get insurance coverage for an extra $30,000 worth of material goods inside the home. You based this extra coverage for material goods on an inventory you did of your home when you started your policy. Now, let's say there is a fire that completely destroys all of your home and what was in it. You are entitled to receive the exact amount of money that you purchased to cover this loss, $180,000. You should not receive any more or less because indemnity gets you back to where you were before your loss, not any better or worse.

Auto Insurance: Your vehicle is in an auto accident and the insurance company for you and for the other vehicle decides that it is the other person's fault. You are not injured; you just have extensive damages to your vehicle. The other person's insurance is responsible for repairing your vehicle to what it was before the loss, not for repairing any thing that was wrong before the loss occurred. So if your car did not have a spoiler on the back before the accident, you can't demand that they give you one after the accident.

This should shed a little bit of light on the concept of indemnity and how it is used in any kind of insurance situation.