Indemnity Insurance for Cars

Indemnification Definition

To understand indemnity insurance, let’s first talk about indemnification. In the auto world, indemnification is an agreement that says an auto insurance company or any insurance provider or indemnity company will cover the costs of any losses from covered events, including bodily injuries, property damages, lawsuits, lost wages and more. Indemnity is another way of saying your insurer will pay for your losses.

How Indemnity Insurance Works for Cars

With car insurance, your insurer pays for covered losses following a collision or a noncollision event like inclement weather or vandalism. Essentially, it shifts the financial burden from you to the insurance company. For example, if you cause a car accident, under your liability coverage, indemnity auto insurance would pay for the medical bills and property damages you’ve caused others.

If you have collision and comprehensive coverage in your insurance plan, which is coverage no state requires, indemnity would cover you and your passengers’ injuries and property damages too. Liability coverage, in contrast, only pays for people and damages outside your vehicle.

Benefits

The benefit of indemnity insurance is that you won’t be responsible financially for your losses as long as your auto insurance policy covers them. So, if someone steals your car and you have comprehensive coverage, your insurance provider will pay to replace the vehicle.

Indemnity insurance extends far beyond car insurance. It also encompasses other types of policies, such as homeowners insurance. Let’s go through a few examples.

Vehicle Accident

Not only would indemnity insurance cover the other party’s losses, but if you had collision insurance as well as medical payments coverage/personal injury protection, it also would cover the losses you and your passengers face.

Nonvehicle Collision

Of course, events other than collisions can damage cars as well. For instance, if someone vandalized your vehicle, your insurer would indemnify you for the property damage, provided you had comprehensive coverage.

As far as car insurance goes, everyone should have indemnity insurance as it’s just another word for car insurance. Every state except New Hampshire and Virginia requires car insurance, so you could get in legal, not to mention financial, trouble if you drive without insurance.

Although indemnity insurance may not be a term used in everyday conversation, if you have car insurance, you already understand the basic concept. Hopefully, the details above shed more light on the subject. Read our frequently asked questions (FAQs) below for even more information.