Difference Between Life Insurance and Indemnity

Life insurance, though, provides a lump-sum payout to the named beneficiaries when an insured party dies. Unlike indemnity insurance, the payout, referred to as a death benefit, is the full amount of the policy not for the amount of a claim itself.

1.Life Insurance

Purpose: Life insurance is designed to provide financial protection to the beneficiaries of the policyholder in the event of the policyholder's death. It serves to replace the income lost due to the death of the insured individual.

Coverage: Typically, life insurance pays out a lump sum to the beneficiaries upon the death of the insured, although there are various types of life insurance policies with different structures and benefits.

Examples: Term life insurance, whole life insurance, universal life insurance, and variable life insurance are common types of life insurance policies.

2.Indemnity:

Purpose: 

Indemnity insurance, on the other hand, is a type of insurance that protects against financial losses arising from various unforeseen events, such as accidents, liabilities, or damages.

Coverage: 

Instead of providing a fixed sum upon a specific event like death, indemnity insurance compensates the insured for the actual financial loss suffered, up to the policy limits.

Examples: Examples of indemnity insurance include car insurance, professional liability insurance, property insurance, and health insurance. These policies reimburse the insured for the covered losses or expenses incurred due to specified events.

In summary, while both life insurance and indemnity insurance offer financial protection, life insurance primarily covers the risk of death and pays out a predetermined sum to the beneficiaries, whereas indemnity insurance covers various risks and reimburses the insured for actual losses incurred up to the policy limits.