What does indemnity refer to in insurance?

Indemnity in insurance is a fundamental principle that refers to the compensation provided to policyholders for losses or damages they have incurred. This principle ensures that the insured is restored to their financial position prior to the loss, without profiting from the insurance payout. In this context, indemnity is about making the insured whole again following an incident that results in a covered loss.

The other options represent different concepts in insurance. For instance, a guarantee of future insurance payouts does not capture the essence of indemnity, as it implies a promise rather than compensation for actual losses. Similarly, the total value of insured property pertains to the valuation of the assets rather than how losses are compensated. An insurance premium reduction relates to the cost of the insurance policy itself and does not fit the definition of indemnity at all. Thus, the concept of indemnity is specifically about compensating for losses that have actually occurred, making the correct choice clear.