What type of loss does indemnity seek to cover?

Indemnity in the context of insurance is designed to restore the insured party to the financial position they were in before the loss occurred. This includes covering not just direct losses, such as damage to crops or property, but also indirect losses that may arise as a result of the initial direct loss. For instance, if a farmer’s crop is damaged, the indemnity could cover not only the value of the lost crop itself but also any consequential losses, such as the potential income loss from crop sales.

By aiming to cover all types of financial loss—both direct and indirect—indemnity ensures that the insured is compensated comprehensively, allowing them to recover fully from their losses without profit from the insurance itself. This principle aligns with the objective of insurance to mitigate risk and provide financial stability following an adverse event. Other options would suggest a limited scope of coverage, which would not comprehensively address the various financial impacts resulting from a loss.