What does 'indemnity' in insurance primarily ensure?

Indemnity in insurance is primarily designed to provide compensation for actual losses incurred by the insured, without allowing for any profit. This principle ensures that the policyholder is restored to the financial position they were in prior to the loss, which, in turn, prevents the insured from gaining financially from their misfortune.

By adhering to the principle of indemnity, insurance operates as a risk management tool rather than a means of profit generation. This is crucial for the sustainable functioning of insurance, as it maintains fairness and discourages fraudulent claims, where an individual might attempt to benefit from claiming more than the actual loss they experienced. This approach also helps in building trust in the insurance system, as clients can expect fair treatment when they file claims for covered events.

The other options do not align with the core purpose of indemnity. The focus is on mitigating loss rather than providing profit, and indemnity does not entail future premium payments or investments in multiple products.