CHARACTERISTICS OF AN INSURANCE CONTRACT - 3

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INDEMNIFICATION : TO indemnify means to make good the loss which means to re-instate the person back to the position that he would've been in had there been no loss, to the extent possible.  This is the reason why the Life Insurance is not considered as an Indemnity Insurance but rather only a Contingency Insurance. There are usually three types of Insurance contract that looks to Indemnify the Insured. They are as follows :

1. A REIMBURSEMENT POLICY : 
2. A PAY ON BEHALF POLICY 
3. AN INDEMNIFICATION POLICY 

From the point of View of the insured the result is usually the same i.e the insurance company pays to the Insured the Loss and Claims expense. If a reimbursement policy is taken then the Insured will pay the expenses or the losses he incurred and the Insurance company will reimburse the same to the Insured, thereby indemnifying him.

In the case of the "Pay on Behalf Policy"  the insurance company will pay and defend a claim on behalf of the Insured wouldn't be required to pay for anything. Most modern Insurance contracts are written on the basis of "Pay On Behalf" language which enables the insurance company to manage the claims as well as to control them. In the case of AN Indemnification Policy the Insurance company generally either reimburses or pays on behalf of the Insured which ever is more beneficial to the Insurance company as well as the insured.

Any entity which seeks to transfer the risk would've transferred that risk to the insurance Company as soon as the risk is assumed by the Insurance Company by means of a contract which is called as Insurance Policy. Generally an Insurance Policy includes the following elements

• The participating Parties
• The Premium
• Coverage Period
• The Loss Event Covered
• The Amount of Coverage
• Lastly the Exclusions

The Insured is said to be Indemnified against the loss covered by the Insurance Policy. When the Insured Party experiences a loss due to the reason covered Under the insurance policy then the Insured is eligible to make a claim against an Insurance Company. The fees paid by the Insured to the Insurer is called as a Premium. Premium is actually the consideration which is given by the Insured to the Insurance company for the assurance given by the Insurance Company.