What is an "indemnity" benefit in disability insurance?

An "indemnity" benefit in disability insurance is designed to compensate the insured for their actual loss of income as a result of a covered disability. This type of benefit is directly tied to the financial impact that the disability has on the individual's earnings. Essentially, it aims to restore lost income and provide financial support during the period when the insured is unable to work due to their disability. By being based on actual loss, it reflects the principle of indemnity in insurance, which is to make the policyholder whole again, financially speaking, after experiencing a loss.

In this context, the other options do not accurately capture the essence of what an indemnity benefit entails. A fixed monthly benefit amount, for instance, does not consider the individual’s income loss and may not be reflective of the actual situation faced by the insured. A lump-sum payment upon policy activation implies a one-time financial support that does not align with the ongoing nature of income loss due to a disability. Lastly, a benefit that covers medical expenses only does not relate to lost wages or income replacement, which is the primary function of an indemnity benefit in disability insurance. Therefore, the correct understanding of indemnity benefits emphasizes their relation to actual income loss rather than a fixed amount or specific