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💰 '''Indemnity payment''' is the sum an [[Definition:Insurance carrier | insurer]] pays to or on behalf of a [[Definition:Policyholder | policyholder]] to restore them, as closely as possible, to the financial position they occupied before a covered loss occurred. Rooted in the [[Definition:Principle of indemnity | principle of indemnity]] — one of the foundational doctrines in insurance law — such a payment is not meant to enrich the insured but rather to make them whole. This distinguishes indemnity-based coverages from [[Definition:Valued policy | valued policies]] or benefit-trigger products where a fixed amount is paid regardless of the actual loss sustained.

⚙️ When a covered event occurs, the [[Definition:Claims adjuster | claims adjuster]] quantifies the actual financial damage — repair costs, replacement value, lost income, or third-party liability — and the carrier issues an indemnity payment up to the applicable [[Definition:Policy limit | policy limit]], minus any [[Definition:Deductible | deductible]] or [[Definition:Self-insured retention (SIR) | self-insured retention]]. In [[Definition:Property insurance | property insurance]], the payment may reflect either [[Definition:Actual cash value (ACV) | actual cash value]] or [[Definition:Replacement cost | replacement cost]], depending on the policy terms. In [[Definition:Liability insurance | liability insurance]], indemnity payments often flow directly to injured third parties or their attorneys through settlements or court judgments, with the insurer fulfilling its contractual obligation to defend and indemnify the policyholder.

🔍 The structure and timing of indemnity payments carry significant implications for both insurers and insureds. Prompt, accurate payments uphold the promise at the heart of every [[Definition:Insurance contract | insurance contract]] and directly influence customer retention and brand reputation. On the carrier side, the aggregate volume of indemnity payments drives [[Definition:Incurred losses | incurred losses]] and shapes [[Definition:Loss reserve | reserving]] strategies. Disputes over the proper measure of indemnity — whether a loss qualifies, how damages are valued, or whether [[Definition:Subrogation | subrogation]] rights exist — remain among the most litigated issues in insurance law, underscoring how central the concept is to every claim that moves through the system.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Principle of indemnity]]
* [[Definition:Actual cash value (ACV)]]
* [[Definition:Claims adjustment]]
* [[Definition:Subrogation]]
* [[Definition:Policy limit]]
* [[Definition:Valued policy]]
{{Div col end}}

Definition:Indemnity payment - Revision history

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