California Real Estate Practice Exam

What does "indemnify" mean in the context of insurance?

1. To always gain

2. To gain, but never lose

3. To lose, but definitely not gain

4. To make compensation for incurred loss/damage

The correct answer is: To always gain

In the context of insurance, "indemnify" specifically refers to the obligation of one party to compensate another for loss or damage that has been incurred. This is a fundamental principle in insurance, where the insurer agrees to cover the insured for specific types of losses, thus restoring them to a financial position similar to that which they held prior to the loss. The correct understanding of "indemnify" is represented in the choice that states it means to make compensation for incurred loss or damage. This ensures that the insured is protected against unexpected events that may cause financial harm, reinforcing the purpose of insurance as a means to mitigate risk. The incorrect choices imply outcomes that do not accurately reflect the nature of indemnification, as indemnity is not about always gaining or only suffering losses without the possibility of compensation. It is fundamentally about providing assurance and financial protection in the face of unforeseen events.