Texas All Lines Adjuster Practice Test

What is indemnity insurance primarily designed to do?

1. Cover liability claims

2. Indemnify loss rather than liability

3. Provide health insurance benefits

4. Insure against theft or property damage

The correct answer is: Indemnify loss rather than liability

Indemnity insurance is primarily designed to indemnify loss rather than liability, which means it aims to compensate the policyholder for the actual loss they suffer. This type of insurance functions by restoring the insured to the financial position they were in before the loss occurred, effectively covering financial losses incurred due to specific events or damages. The focus of indemnity insurance is on the measurable financial impact of an event, rather than providing coverage related to legal responsibilities or obligations to third parties. This is distinct from liability insurance, which is focused on protecting the insured from claims arising from damages or injuries to others. While indemnity can pertain to certain areas like property damage, the core concept revolves around compensating for actual losses experienced by the insured party. Thus, the emphasis on indemnifying loss underscores the purpose of this type of insurance, which is critical for individuals and businesses seeking to recover financially from unexpected and adverse events.