What does the term indemnify mean in insurance?

Indemnify in the context of insurance refers to the process of compensating for a loss and restoring the insured party to their previous financial position prior to the loss occurring. This concept ensures that the insured does not suffer a financial setback due to unexpected events, as the insurance provider will cover the costs associated with the claim. The primary goal of indemnification is to make the insured whole again, without allowing them to profit from their loss—that is, they should be compensated only to the extent of their loss.

In regard to the other options, while imposing fines, denying claims, or encouraging further investments may have their own roles in insurance, they do not align with the fundamental meaning of indemnification, which is specifically focused on compensation and restoration following a loss.