Contract of Indemnity
A contract designed to restore the insured to the same financial position held before the loss, no better. Property and health insurance are contracts of indemnity; life insurance is not.
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Practice This Concept
Life insurance is generally NOT considered a strict contract of indemnity because:
The policy pays a fixed face amount rather than an amount equal to the actual financial loss — Indemnity means restoring the insured to the financial position that existed before the loss, a principle central to property insurance. Life insurance pays a stated face amount that the parties agree upon at issue, not a reimbursement of an actual dollar loss, because the value of a human life cannot be measured precisely. For this reason life insurance is described as a valued contract rather than a strict contract of indemnity. This distinction also explains why life policies are not subject to coinsurance or actual cash value calculations.
National insurance concept
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