01 Nov What is the distinction between indemnity insurance and non-indemnity insurance?
In this article on insurance I shall define:
- Indemnity insurance,
- Non-indemnity insurance, and
- The difference between these types of insurance.
With indemnity insurance, the insurer undertakes to indemnify the insured against loss. The purpose is to restore the insured to the position that he was in before the loss occured. For example, car insurance would be an example of indemnity insurance as the purpose of this is to restore the policy holder to the position that he was in before he was involved in a motor vehicle accident and the object of risk (in other words, his car) is damaged. The insurer is not allowed to make a profit from this.
In terms of non-indemnity insurance, the insurer undertakes to pay a sum of money – or a number of periodical payments – to the insured in the event of a future uncertain event occuring. Thus – for example – disability insurance would be classified as non-indemnity as if the future, uncertain event of the insured becoming unable to work occured, the insured would be paid out a lump sum of money or periodic payments as per the stipulations of the contract concluded between the two parties.
The main difference between these two types is that indemnity insurance deals with patrimonial loss while non-indemnity insurance deals with non-patrimonial loss.
As I am a law student, I take no responsibility for the accuracy of my article as this has not been checked by a practising legal expert. This is merely my interpretation based on the subject of this article.