We know the world of insurance can be confusing, so we are here to help you through it!
In this video we are going to explain the difference between indemnification and insurance, so, let’s first understand what Indemnification means.

To indemnify” means to compensate someone for their harm or loss.
An indemnity refers to a contractual obligation for one party to provide compensation in the event of losses on the part of another party.

Okay, that was easy to understand. But Is Indemnity the Same As Insurance?

The short answer is no. Insurance and indemnity are different because you can have indemnity without an insurance policy but not the other way around.

Here’s why: Indemnity is the process by which responsibility for losses is explicitly transferred within a contractual relationship. Without the contract, there’s no way for an insurance policy to be able to enforce its provided protections.

Insurance, on the other hand, is the actual contract, aka policy, mandating financial restitution from an insurance company in the event of losses.

These two terms: Indemnification and Indemnity are often used interchangeably. For example, it is common to see both indemnity clause and indemnification clause describing the same provision within a contract defining legal responsibility for losses.

In some cases, however, indemnification delineates the act of securing freedom against liability for losses or harm. So, when a contract requires indemnity from losses on the part of another party, you have achieved this. (However, it would be just as correct to state that you have indemnity.)

Are you following along?

I will also list some important terms here that you may encounter in the indemnity/indemnification process
• Indemnitee
An indemnitee is the party in a contract who is free from liability for compensation related to losses. This is the status most of us would strive for in a negotiation.
• Indemnitor
The indemnitor is the party liable for losses or damages. They bear the financial and legal responsibility in the event of a setback, accident, or other issue that may lead to losses. In an insurance contract, this is typically the insurer.
• Hold Harmless
Hold harmless is a provision that typically exists within an indemnity clause—and one sometimes confused for the concept of indemnity. Hold harmless language releases an indemnitee from liability for losses. As we now know, indemnity relates to compensation for losses. Thus, it is technically possible to be held harmless for liability while still being responsible for costs, and vice versa. To learn more please watch our Hold Harmless video. Link will be in the card above and in the description below.

That is it for today folks! Don’t forget to hit the like button and subscribe for more insurance videos.

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