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Frequently Asked Questions

What is Principle of Indemnity in a Life Insurance Policy?

The Principle of Indemnity is one of the seven basic principles of insurance. This principle guides that the insured must be compensated only to the extent of the loss.

a) The objective of the insurer is to put you back in the same financial condition which you were in before the loss.
b) You are compensated after the insurer fully inspects and calculated the loss. The claim you receive is neither less nor more than the loss.
c) This principle is followed to ensure that you do not get profited through insurance claim.

For example, Jethalal is a businessman having an Electronics shop. He has insured his goods worth Rs 10 lakhs. Part of the goods got damaged when a fire broke in the warehouse. Jetha claimed a full 10 lakhs as compensation. Upon examination, it was found that only goods worth Rs 2 lakh were damaged. Now, only Rs 2 lakh will be provided to him.

So, if you have a car which you purchased 5 years ago, and it got involved in an accident. Then the insurer while calculating the loss, will take the depreciated value of the car and not the value which it was first purchased at.