What is the primary purpose of indemnity in an insurance context?

Indemnity in an insurance context serves the fundamental purpose of restoring the insured to the financial position they held before a loss occurred. This principle ensures that the policyholder receives compensation for covered losses, thereby "making whole." The goal of indemnity is to prevent the insured from financially profiting from a claim while also ensuring they do not suffer undue financial hardship as a result of unexpected events.

By focusing on reimbursing for actual losses rather than providing a windfall, indemnity maintains the integrity of the insurance system. This principle is crucial in helping individuals recover from damages, providing support in their time of need, while adhering to the notion of fairness in insurance practices.