The Principle Of Public Indemnity Insurance Clarified
Public indemnity insurance is based on the concept of public provided indemnity insurance. Indemnity insurance can be considered a need based insurance type. The insurance contract makes payments based off of an insured need for coverage of liability. The payments help the insured cover the cost of their personal liability or loss.
The concept of indemnity insurance is that the insurance company agrees to pay an amount equivalent to the extent of the loss. This is designed strictly as replacement insurance and is not intended to allow profit to the insured. Therefore a contract of indemnity is one in which the insurance company agrees to pay an amount that is directly related to a loss. Private health insurance, property insurance, and liability insurance are all generally speaking contracts of indemnity.
The principle of indemnity is a legal principle of insurance that state that insurance is designed to indemnify or financial compensate those entitled to insurance benefits. This is in attempt to make that party financial whole and not to provide profit from an insured loss.
The more common form of public indemnity insurance comes in the form of professional indemnity liability insurance. Professional indemnity insurance is designed to protect professionals from loss resulting from their own negligence, slander, and/or errors. Lawsuits of this nature can be difficult for most professionals to deal with financially. The indemnity insurance provides a way to cover the cost of such loss.
Common professions that require public indemnity insurance include contractors, architects, financial professionals, consultants, engineers, and many other public based professions. Where there is risk of liability and loss from the public, indemnity insurance is a must have for businesses.
The opposite of indemnity liability insurance (at least somewhat) is called a valued contract. A valued contract simply specifies that an established dollar amount will be paid in the case of a loss. And while most insurance contracts are indemnity contracts, life insurance is the most common example that is not. It is based on a valued contract, that specifies a set dollar amount, or death benefit, will be paid out. An insurance company is unable to justify payment of less than the full amount based on their assessment of the value of the decedent’s life.
Remember that despite the intentions of public indemnity insurance coverage, the insured may not be made fully whole from the insurance. Insurance benefits are often subject to policy limits, deductibles, and other limitations that may drastically reduce the coverage of the loss. Indemnity insurance will however lessen the financial blow that the insured would normally face on their own.
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