E-file your Income Tax Returns for FREE

E-file your Income Tax Returns for FREE


Reviewed by Vineeth | Updated on Apr 15, 2021



Indemnity is a type of insurance policy for losses and damages. In legal terms, the term ‘indemnity’ points to exemptions from damages and liabilities. Indemnity is perceived as an agreement among parties in which one accepts to make payments for the potential damages and losses incurred due to another party.

A common example of indemnity is an insurance contract under which the Indemnitor or insurance company accepts to recompensate the policyholder or insured for losses and damages in exchange for a premium paid by the insured to the insurance company.

In an indemnity clause, the insurance company indemnifies the insured that it accepts to make payments that it agreed for to the business or individual for the losses and damages covered in the policy.

Understanding Indemnity

An indemnity condition is a standard agreement in almost all insurance policy agreements. It covers what exactly is included, specifying the extent of coverage, depending on the particular agreements.

All indemnity agreements will include the period over which the indemnity is valid and differs with the type of insurance. It also contains the details of payments. Likewise, most indemnity contract will have a letter of indemnity, which assures that both parties involved are keeping up to the terms and conditions mentioned in the policy.

Breaking Down Indemnity

Indemnity can be paid out in cash or through the way of replacement or repair, depending on the terms and conditions of the indemnity agreement. For instance, for house insurance policies, the house owner will pay the premiums to avail insurance from an insurer. In exchange for the premium paid, he will get assurance from the insurance company that they would assume his or her risk.

The insurance company will indemnify to the house owner that if the house suffers damages for various reasons mentioned in the policy, then he or she would be paid out the compensation as agreed in the policy.

Related Terms

Recent Terms