A fundamental insurance principle that aims to restore the policyholder to the same financial position they were in before a loss, no more and no less. Indemnity prevents policyholders from profiting from an insurance claim.
Related Terms
Actual Cash Value
The current market value of property at the time of a loss, calculated as replacement cost minus depreciation. If your five-year-old roof is damaged, an actual cash value policy pays what a five-year-old roof is worth today — not the cost of a brand-new roof.
Claim
A formal request made by a policyholder to an insurance company for payment or reimbursement for a covered loss or policy event. Filing a claim triggers the insurer to investigate the loss, assess damages, and determine what amount is payable under the policy.
Replacement Cost
The amount it would cost to replace damaged or destroyed property with new items of similar kind and quality, without deducting for depreciation. Replacement cost coverage typically results in higher claim payments than actual cash value coverage.