Understanding the Basis of Indemnity in Insurance
The “basis of indemnity” is a fundamental principle governing how much compensation you receive under an insurance policy for a covered loss. Let’s explore how this applies to property damage insurance:
- Focus on Repair or Replacement: The aim is to restore your damaged property to its pre-loss condition.
- New for Old: Insurers typically cover the cost of repairing or replacing damaged property with new materials of similar quality. There’s no deduction for depreciation due to wear and tear.
- Example: Imagine a fire damages your insured building. The insurer will pay to rebuild it using new materials, without considering the age or reduced value of the original materials before the fire.
This principle ensures you’re financially compensated to recover from a covered loss, putting you back in the same financial position you were in before the incident.
Important to Note:
- The basis of indemnity might not always apply in full. Some policies may have specific limits or exclusions outlined in the contract.
- It’s crucial to thoroughly review your policy terms and understand what’s covered and the compensation limits.
By understanding the basis of indemnity, you can have a clearer picture of what to expect from your insurance company in the event of a covered property damage loss.
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