How does indemnity affect the insured's potential recovery?

Indemnity is a fundamental principle in insurance that aims to restore an insured individual to the financial position they were in prior to a loss, without allowing them to profit from the situation. This principle ensures that the compensation provided to the insured covers only the actual loss experienced, thereby focusing on restoring their financial condition.

When an insured experiences a loss, the insurance policy should compensate them in a way that reflects their pre-loss condition. This means that factors like the value of the lost property, repair costs, or other associated expenses are considered to calculate the recovery amount. The objective is to make the insured "whole" again, not to provide them with a windfall or allow them to benefit financially from the loss.

Understanding the effect of indemnity is crucial for adjusters. It guides how claims should be assessed and the amount of compensation that can be disbursed to ensure compliance with the principle of indemnity. This ensures fairness and upholds the integrity of the insurance system.