What defines an 'indemnity policy'?

An indemnity policy is characterized by its provision of financial compensation to the insured for covered losses up to a specified limit. This means that when a loss occurs, the insurance company will reimburse the policyholder for their financial losses, which are typically up to the amount stipulated in the policy. This is a crucial feature of indemnity policies because it aims to restore the insured to the same financial position they were in prior to the loss, without allowing for profit generation from the insurance claim. Such policies are common in various types of insurance, including property insurance and liability insurance, where coverage is designed to address financial loss rather than provide a predetermined payout or benefits.

The other options reflect different types of coverage that do not fit the definition of indemnity policies. For example, a policy covering specific perils only implies limitation based on the types of risks defined in the policy, which does not align with the broad compensatory nature of indemnity. Lifetime coverage without limits would typically describe a type of whole life insurance or a similar permanent insurance policy, rather than an indemnity structure. Lastly, daily benefits for hospitalization are indicative of health insurance policies that provide specific benefit payments, rather than compensating for losses after an event has occurred, which is central to the indemnity