In a world that is unexplainably fragile and unpredictable, having an Indemnity policy to save your skin during an emergency, is a very wise move. ‘Indemnity’ literally means protection against future loss. As the name itself suggests, Indemnity policies legally save you from liabilities for damages that may arise in future. The principle of indemnity is strictly observed insurance. These insurances (for instance, Professional indemnity insurance) are designed to provide the insured person protection against the financial consequences of legal liability. In the unfortunate event of a person being held liable by the law for paying damages the Indemnity Insurance policy ensures that the onus to make the payment lies with a third party, i.e. the insuring agency. It also covers the costs incurred in the legal process and the expenses made by the insured party to reach a settlement of claims, provided they are done with the consent of the insurer.
There are basically two types of Indemnity Insurance Policy, namely an “indemnity policy” and a “pay on behalf” policy, with the latter being more popular in practice. In case of the former, the insurer himself has to pay the damages which are later reimbursed by the Insuring agency whereas in case of “pay on behalf” policy, the insured person is not required to dole out any amount and the payments are managed by the insurance agency itself, provided they are within a previously agreed limit. “Pay on behalf” is generally the more common form of Indemnity Insurance policy and is widely used owing to the convenience, reduced paperwork and overall transparency.
An Indemnity Insurance Policy is basically a legally binding contract with three main parties- the insurer, the insured and the beneficiary. It also includes the premium, the period till which the policy will remain active, the amount of coverage, the events which are covered and the exclusions. Here, “Premium” refers to the fee charged by the insuring agency from the insured individual. Typically, Insurance premiums from many insures are used to fund accounts reserved for later payment of claims—in theory for a relatively few claimants—and for overhead costs.
