What does "contract indemnity" ensure in an insurance policy?

Contract indemnity in an insurance policy refers to the principle that aims to restore the insured to the financial position they were in immediately before the loss occurred. This principle is integral to the functioning of insurance because it ensures that the insured is compensated for their loss without profiting from the insurance payout. The goal is to maintain fairness within the insurance system, preventing any individual from benefiting financially due to a claim while assisting those who have suffered losses by making them "whole" again, in a financial sense.

In contrast, payment of claims without a deductible, statutory limitations, and additional premiums for higher coverage do not represent the core function of indemnity. Options related to deductibles focus on the insured's share of the loss, statutory limitations refer to legal time frames for claiming losses or disputes, and additional premiums pertain to the cost of insurance rather than the treatment of losses. Therefore, the focus of indemnity is distinctly on restoring the insured's previous financial state.