How Life Insurance Policy Is Not A Contract Of Indemnity?

Suppose you buy a computer and it breaks down within 24 hours of purchasing. But you purchased insurance for the computer. So now, the insurance company will pay you back for it. This is indemnity. Most insurance policies work on this principle except for life insurance.

A life is something that you cannot replace with money. A life insurance policy is a unique agreement that helps look after your family if you are not around. And so, it is not considered a contract of indemnity.

Let’s break this down and see how life insurance is not a contract of indemnity.

Meaning of Indemnity

Indemnity is a type of compensation given by insurance companies for loss or damage. Indemnity is an agreement between you and the insurance company. Here, the insurance company agrees to pay for potential losses or damage caused by you. It’s like a safety net. Say you crash your car in an accident; your insurance will pay to get it fixed or replaced. In this type of agreement, you get insurance money equal to the damages or the commodity’s worth. 

Life Insurance: A Different Approach

Now, life insurance is different. When it comes to life insurance, it is not about trying to replace the irreplaceable. Instead, it’s a promise, a plan for the future. When you get life insurance, you safeguard your family’s financial future in case something happens to you. 

It’s About the Big Picture

With life insurance, instead of fixing what is broken, we are looking ahead. It is about making sure that your family has the money they need for things like living costs, school fees, or just to keep the life you’ve built together going strong, even when you are not there.

You can put a price on a lost phone or a damaged car, but not on a person’s life. That’s why life insurance doesn’t try to figure out someone’s worth in money. Instead, it’s about agreeing on an amount that can help those left behind to keep moving forward. The insurance company considers your current expenses, debt, loans, future expenses, etc. to decide on the amount of coverage. Such calculation ensures that your family doesn’t have to struggle to meet their financial obligations.

A Helping Hand for the Future

Life insurance isn’t just about a payout when someone passes away, either. Some types of life insurance can also be a way to save money over time. Think of it like a pot that grows, which you can dip into for milestones or even retirement.

Who Gets the Benefit?

Here’s another difference: with that safety net for your vase or car, the money comes to you when something goes wrong. But with life insurance, the money goes to the people you choose, like your family or friends, to help them out when you can’t be there. You have to select a beneficiary, also known as a nominee, at the time of buying life insurance. This beneficiary will get the insurance money in case of your demise.

Choosing Life Insurance Wisely

Knowing all this, how do you pick the right life insurance? Here are a few tips:

Figure Out What You Need

Take a look at your life and the people in it. How much money would they need if you weren’t around? This helps you decide on the right coverage amount for your life insurance.

Think About Time

How long do you need the insurance for? Until your kids are grown up? Until retirement? This helps you decide the policy term. Policy term is the tenure of the policy—the number of years the policy will last.

Add Some Extras

Many life insurance policies come with options for add-ons. These add-ons provide extra protection, like critical illness insurance if you are diagnosed with a severe illness. These aren’t about paying back a loss but giving you support when you need it most.

Plan for Different Stages of Life

As your life changes—maybe you get married, have kids, or buy a house — your life insurance needs can change too. It’s good to think about how your insurance fits with each stage of your life.

The Heart of Life Insurance

Life insurance is really about care. It’s a way of ensuring that your family does not suffer financially. It’s not about measuring value; it’s about creating a safety net for those you love.

If you’re curious to know more about how life insurance works and why it might be something for you to think about, diving into what is life insurance can give you a solid start.


Life insurance isn’t like other kinds of insurance that pay you back for something lost or broken. It’s a unique kind of promise that offers support and peace of mind for the people you care about most. So while you can’t put a price on life, you can certainly make a plan to protect the future of those who depend on you.

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