What is the primary aim of indemnity in an insurance contract?

The primary aim of indemnity in an insurance contract is to restore the insured to their prior financial position following a loss. This principle ensures that the policyholder is compensated for their losses, but not in a way that allows them to profit from the insurance claim. The purpose of indemnity is to make the insured whole again, reflecting the idea that insurance is designed to provide security and protection against unforeseen events rather than a financial gain.

This principle is fundamental in maintaining ethical standards within the insurance industry, ensuring that individuals are supported in their time of need while preventing abuse of the system by claiming amounts that exceed the actual loss incurred.