Contract of indemnify : A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person, is called a contract of indemnity. These are all contracts of insurance of indemnify for loss of life and personal accident insurance, as no payment can indemnify for loss of life or physical injury. In life insurance, the insurance company is liable to pay a certain sum of money or annuity on the death of the insurer or after the expiry of the policy. Thus, the amount so fixed remains constant. Hence, it is a contingent contract and not a contract of indemnity.
In other types of insurance, the assured in the case of loss shall be fully indemnified but not more than its full value. The insured will not be allowed to make any profit out of the goods insured. Thus, insurance provides compensation to the insured on occurrence of a particular event. The compensation will be in proportion to the loss. If the value of the goods insured increases after the date of the policy, the insurance company is not liable to pay for the loss in respect of the increase in value. The compensation may be in the form of cash, repairing charges, replacement, etc. A contract of insurance ceases to be a contract of indemnify when the insurance company promises to pay a fixed sum of money whether the insured has suffered any loss or not.