Why is insurance based on the concept of indemnity?

Expert Solution

Indemnity implies compensating for the loss. It can be seen as the protection against a loss, hence it is headgear of the risk element. The probability of occurrence of such an event is low however, it is difficult to handle such a loss.

Insurance is a contract of indemnity because the insuree pays a regular premium to the insurance company to protect him against the loss if it may arise. The insuree makes a regular payment for a risk he does not want to accept and pass on to a different entity. The insurance company on the other hand promises under a contract to protect if such a loss occurs in the defined duration as stated by the contract.

keosha answered 2 years ago

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