What is the term for financial compensation provided by an insurer after a covered loss?

Indemnity refers to the financial compensation provided by an insurer to a policyholder after a covered loss occurs. This concept is foundational in insurance, designed to restore the insured to the financial position they were in prior to the loss, without allowing them to profit from the situation. Essentially, indemnity ensures that the claimant receives a payment that covers their actual loss, adhering to the principle of insurable interest.

The other terms do not describe this financial compensation. Coverage refers to the protection provided by an insurance policy against certain risks or losses. A beneficiary is typically the individual or entity designated to receive benefits from a policy, such as life insurance, upon the event of a claim. Policy limit denotes the maximum amount an insurer will pay for a covered loss under a policy, not the compensation received after a loss is claimed. Thus, indemnity specifically captures the essence of the financial compensation aspect in insurance.