How is the amount of indemnity determined?

The amount of indemnity in an insurance context is determined immediately prior to the loss. This approach aligns with the principle of indemnity, which aims to restore the insured to the financial position they were in before the loss occurred, without allowing them to profit from the insurance claim. By assessing the indemnity amount at the time right before the loss, the insurer is better able to reflect the current value of the insured property or asset, accounting for any depreciation, market changes, or other relevant factors that could affect its worth.

Other methods, such as the original purchase price or values at the inception or renewal date, do not consider the current value or condition of the property at the time of loss. These alternatives could lead to situations where the insured may not receive a fair compensation that accurately reflects their loss, which goes against the fundamental purpose of indemnity coverage in insurance.