JAIIB LRAB STUDY MATERIAL 2022 FREE IMPORTANT NOTES – WHAT IS INDEMNITY?
Read one of the most important topic from the LRAB Syllabus 2022 if you want to pass this JAIIB Exam 2022.
Indemnity provides comprehensive insurance compensation for any damages or losses. When we talk about indemnity in the legal sense it referred to an exemption from the liability for any damages.
Under the contractual agreement of indemnity between two parties, one party agrees to pay any loss or damage which could be caused by another party.
Example: In a contract of insurance, the insurer or the Indemnitor agrees to compensate the insured in exchange for a premium which will be paid by the insured to the insurer. Under this contract of indemnity, the insurer covers the policyholder for any loss that he or his/her business might occur in the future.
WORKING OF INDEMNITY
Indemnity clauses are very common in most insurance agreements. Although different arguments define different coverages and the extent of the coverage as per their own terms and conditions.
An agreement of indemnity is valid for a specific period of time. There are many other contacts that also include the letter of indemnity through which it is agreed that both the parties will meet their contractual obligations towards each other.
You can easily find indemnity agreements between individuals and businesses. For example, in the case of car insurance. Indemnity is also found in contracts of the large scales that are made between businesses & governments or even among the governments of two or more countries.
Indemnity clauses are quite negotiable but when the cover is increased for risk, the cost of insurance also increases. Indemnity clauses can be complicated to negotiate and can also lead to increased costs of services because of the increased risk of the contract.
There are times when the government, businesses or even an entire industry must take up costs of larger issues on the public’s behalf.
Example: In cases of outbreak of diseases such as the recent case of covid-19.
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PAYMENT OF INDEMNITY: When the contract of indemnity is called up to ask for compensation, the payment will depend on the agreement of indemnity which could either be fulfilled by paying cash or by paying for repairs or replacement.
Example: In the case of home insurance, the insurance premium is paid in exchange for the assurance that the insured will be indemnified if his or her home gets damaged from fire, natural disaster, or other perils which were specified when the agreement was made.
In case the property gets damaged significantly, then the insurance company will have to restore the property either through repairs or by reimbursing the expenses of restoration that will be incurred by the homeowner.
A company or an individual can get protection against indemnity claims by way of indemnity insurance. This type of insurance protects the insurance company from paying the full amount of indemnity promised to the parties it has insured.
There are many companies that make having indemnity contracts a requirement because lawsuits are very much common. For example, because indemnity contracts include insurance against malpractices, these kinds of contracts are common in the medical field, and angles and omission insurances which are there to protect the companies and their employees against legal claims that have been made by the clients. This is applicable to almost every given industry. There are some companies that have also taken the deferred compensation indemnity insurance which will protect their money which they expect to lose in the future.
Like any other form of insurance, indemnity insurance also requires that you pay the cost of indemnity clean including fees of court, lawsuit fees and settlement etc. (not limited to). This coverage amount will depend on the agreement while the cost of insurance will depend on different factors including the history of previous claims that have been made by the company or the individual.
Leases of the property also include clauses of indemnity.
For example: In the case of rental properties, a tenant is required to pay for the damages that happened because of his or her negligence, any fine, lawyer fees, and many more expenses which may depend on the agreement.
ACTS OF INDEMNITY
It protects those who had acted illegally from the penalties too. This type of insurance is applicable to public officers such as police officers or officials of government. The reason is that there are times when they are compelled to act illegally in order to fulfill their responsibilities towards their jobs.
This type of protection is granted basically to a group of people who commit illegal acts for the common good.
For example the assassination of a dictator or terrorist leader.
This way, an indemnity is a comprehensive insurance that provides for the payment of compensation of damages or losses which are caused by another party for an insurance premium.