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.
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.