Finance glossary
Indemnity
In simple terms
Indemnity means putting you back in the financial position you were in before the loss — no better, no worse. A payout may take off wear and tear, so you get the item’s current value rather than a brand-new one.
On this page
What does indemnity mean?
Indemnity is the principle that insurance should restore you to the financial position you were in just before the loss — not leave you better off. It is a core idea behind most general insurance.
On an “indemnity” basis, a payout reflects the current value of what was lost, allowing for age and wear, rather than the cost of a brand-new replacement.
How indemnity works
If a five-year-old washing machine is destroyed, an indemnity settlement pays roughly what that used machine was worth, not the price of a new one. “New-for-old” cover, by contrast, pays for a new replacement.
Knowing which basis your policy uses tells you what to expect at claim time.
How could this affect me?
On an indemnity policy you may need to top up to replace older items, because the payout reflects depreciation. That can be a shock if you assumed you would get a new-for-old settlement.
Check whether your contents or other cover is indemnity or new-for-old before you need to claim.
Things to watch out for
- Indemnity payouts deduct for wear and tear — you may not get a new item.
- Check whether your policy is indemnity or new-for-old.
- Older, high-value items can leave a big gap to replace.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- ABI, Understanding your home insurance (opens in a new tab). Accessed 22 Aug 2026.