Indemnity Contract

Well loosely speaking indemnity is a contract of risk sharing. Broadly speaking in indemnity contract one party agrees to compensate other party for his damages or loss. This loss or damage must be measured by money that is financial loss. This compensation may be partial or in such way that appears the loser never lost anything. It means that the indemnitor will put you back or cover your loss in such way that you were exactly before the event or damage.

The party who indemnifies or compensates the damage is called indemnitor and the party who takes the compensation for the loss is known as indemnitee.

Here in our area of discussion all type of insurance is subject to an indemnity except life insurance. Life insurance is not a contract of indemnity.

Why life insurance is not a contract of indemnity?

Life insurance is not a contract of indemnity because the life may be yours or ours cannot be measured in terms of money. Indemnity applies only to financial loss. Anyone’s death or loss of life is not financially measured a lot of financial, emotional and social facts are here. So life insurance is not an indemnity contract. But we often see or heard about 1 million dollar of life insurance. So does it mean that his or her life’s value is 1 million dollar? Well absolutely not.
Insurer only helps financially nothing else. They provide financial compensation in such a sense that life (person) could or could have maintained the family or a person financially, so that life is no longer and no financial maintenances so here comes the insurer as rescue.

 There are some forms of compensation in indemnity:

• Cash payment.
  
• Repair.
  
• Replacement.
  
• Reinstatement.