How is the amount paid under the indemnity option of household claims determined?

The amount paid under the indemnity option of household claims is determined by making a deduction for wear and tear, which takes into account the item’s age and condition. This principle of indemnity ensures that the insured is compensated fairly for their loss without profiting from the claim.

In practice, when a claim is made, the insurer evaluates the current market value of the item in its used condition, rather than its replacement cost or original purchase price. This assessment reflects not only the depreciation that occurs over time but also the actual condition of the item at the time of the loss. By deducting for wear and tear, the insurer aims to return the policyholder to the approximate financial position they were in prior to the loss, rather than restoring them to a brand-new state. This approach aligns with the indemnity principle, preventing any potential profit from insurance claims and promoting fair practices within the insurance industry.