Indemnity and Compensation

Question: Describe about the Indemnity and Compensation? Answer: Introduction Cannon and McGurk (2010) opined that indemnity is the monetary benefit given to an individual to protect the individual against any future loss. However, compensation is given as a substitute of a loss that the individual has incurred. Hence, both indemnity and compensation serves the same purpose for an individual but at different phases of life. Evaluation The agreement of indemnity provides protection to the individual against any fore coming loss. When compensation is paid, the individual receives the monetary payment against some emergency loss that the individual has incurred. Hence, Mock et al. (2010) suggested that an individual cannot avoid an indemnity agreement. It is a legal obligation on the part of the insurer to pay the amount of indemnity to the insured. However, compensation can be avoided because the payment of compensation depends upon the personal wish and monetary strength of the individual. Bhatia (2010) suggested that the term indemnity is rightfully used about the payment made by an insurance company to the insured individual against the insured asset. However, compensation payment does not involve any insurance policy. In general, situations the relief funds payment made by the government are considered compensations. For instance the government provided food, clothes and sufficient monetary funds to the Ebola affected areas in order to help the Ebola affected people. This is considered as compensation. However, in this similar example if the individuals affected by Ebola have personal insurance with some insurance company then the individual is entitled to receive monetary benefits in form of indemnity from the insurance company as well. McGuinness (2010) commented that the basic difference between the two terms in regarding the bearer of the financial risk. In case of indemnity, payment the insurer is the bearer of the risk and incase of compensation payment the government or any local authority is the bearer of the risk. In case of compensation there may be no legal or written obligation concerning the duty of payment of the government. However, compensation payment is a national duty of all governments and local authorities. Milkovich et al. (2010) stated that the government collects tax revenues from the individuals in a particular country hence the compensation policy is designed to ensure the welfare of the citizens and the revenue is collected indirectly from the amounts of tax revenues. However, payment of indemnity requires a legal recording of the indemnity agreement. Section 4 of the States of Frauds act 1677 states that guarantee of indemnity must be produced in writing in a contract form in order to make the agreement enforceable. The clause of indemnity is present in both insurance and contracts. In case of insurance, the insurance company makes payments to the individuals for the actual financial loss up to a certain limit as mentioned in the policy contract. However, in all cases the individual affected by the loss is required to give proofs of the same before the recovery can be made. Hence, Lee (2012) suggested that the indemnity amount that the individual will recover would depend upon the amount of loss the individual can prove although if the mentioned value in the policy is higher than the amount of loss sustained. However, in case of compensation the individual can expect any amount from the government depending upon the intensity of the loss. Baran et al. (2012) suggested that this can be an advantage as well as a disadvantage for the individual. The loss compensated depends upon the personal evaluation of the compensator and hence there is no guarantee over the amount of money that the individual can recover. For instance, Mr. As bike collided with Mr. Bs car. A incurred several injuries and the head light of the bike broke and the bike sustained several repairs (Zebrowski, 1982). Since there was not agreement between the two parties, hence Mr. B was not legally bound to indemnify Mr. A. However, on emotional grounds Mr. B agreed to pay compensation to Mr. A. The compensation amount paid was negligible and Mr. A was not even able to compensate the repair charges with the same. Hence, the individual sustained both physical and financial loss in respect of compensation scheme. However since Mr . A was insured with an insurance company and had a vehicle insurance hence on submission of the proofs of loss he was able to indemnify his losses (Hansen, 2010). Conclusion In general, context individuals tend to think that the concepts of compensation and indemnity are similar; however, the above discussion shows the basic conceptual difference between the two terms. Thus, an individual to avail the necessary benefits against all types of financial losses needs to make themselves indemnify with an insurer and also may claim compensation on the grounds of severe injuries. References Baran, A., Bigus, J., Eckhardt, P. and Van Roosebeke, B. (2012).Alternatives to investor compensation schemes and their impact. Brussels: European Parliament. Bhatia, K. (2010).Compensation management. Mumbai: Himalaya Pub. House. Cannon, M. and McGurk, B. (2010).Professional indemnity insurance. Oxford: Oxford University Press. Hansen, F. (2010). Currents in Compensation and Benefits.Compensation Benefits Review, 42(1), pp.3-15. Lee, K. (2012). Uncertain indemnity and the demand for insurance.Theory and Decision, 73(2), pp.249-265. McGuinness, K. (2010).Guarantee and indemnity. Markham, Ont.: LexisNexis Canada. Milkovich, G., Newman, J. and Cole, N. (2010).Compensation. Toronto: McGraw-Hill Ryerson. Mock, R., Savage, A. and Simkin, M. (2010). The Ethics of Indemnity Clauses in Academic Publication Contracts.Issues in Accounting Education, 25(2), pp.267-278. Zebrowski, M. (1982). Indemnity Clauses and Workers' Compensation: A Proposal for Preserving the Employer's Limited Liability.California Law Review, 70(6), p.1421.