What does "indemnity" mean in the context of insurance?

In the context of insurance, "indemnity" refers to the principle of restoring an insured person to their financial position prior to a loss, without allowing them to profit from the insurance claim. This principle ensures that the claimant receives compensation that covers their actual economic loss, providing a sense of fairness and preventing any windfall profits that could arise from an insurance payout.

For example, if an individual suffers damage to their property, the insurer would compensate them for the cost of repairs or the value of the loss, effectively putting them back in the same financial position they were in before the incident occurred. This is a fundamental concept in insurance, as it upholds the integrity of the insurance system and ensures equitable treatment for policyholders.