What does the term 'indemnity' generally refer to in insurance?

Indemnity in insurance refers to the principle of financial compensation for a loss. This concept aims to restore the insured party to the financial position they were in prior to the loss, without allowing them to profit from the situation. The essence of indemnity is to cover the actual loss suffered, ensuring that the insured receives an amount equivalent to their loss, not exceeding the value of the insured property or the limit stated in the policy. This principle is foundational in insurance contracts, as it promotes fairness and prevents individuals from taking excessive advantage of an insurance policy following a loss.

The other options relate to different aspects of insurance but do not accurately define indemnity. Coverage of all property values does not align with the specific nature of indemnity, as it suggests a broader scope of coverage rather than compensation. Replacement of old for new material speaks to the concept of actual cash value or replacement cost, which may not always reflect the principle of indemnity. Lastly, market value assessment of property pertains to valuation methods and is separate from the notion of indemnity, which focuses solely on compensating for losses, not how property value is assessed or determined.