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Indemnification Insurance: Why It Helps to Have It

written by: wearmanyhats•edited by: Laurie Patsalides•updated: 6/29/2011

Many people know about auto, life, home, and specialty insurance such as boat or motorcycle. But not many people know about accident insurance or indemnification.

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    What it Means

    Indemnification means that one particular party, usually an insurance company, will provide some sort of compensation for a loss. Accident insurance is the best example of this. Consider Ted Rose, the former manager of auto body shop in Alaska. In 2000, a scratch on his elbow became so infected, that he had to have an actual special machine to carry around to administer an antibiotic to the wound. The cost: $2200.00. Rose was lucky. His wife had purchased accident insurance for him six months earlier, and the policy paid for the medical bills since it was accident related. That small $125.00 premium paid out well for an unexpected problem.

    Other popular indemnification policies cover things like loss of limb, death in an accident, or losing your luggage. These loss insurance policy premium cost little because the payout is small and not many people claim on them.

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    Illness Coverage

    AFLAC is probably the best known indemnification insurance company. The loss incurred by an illness such as cancer or heart attack is covered under their specific or more general policies, but they are not the only company that offers such insurance. Insurance agents will generally sell the insurance at the job site. Most coverage gives out a specific payment for the time of hospitalization and the amount of the premium is usually only a few dollars a month. That’s because a broad population buys these plans but only a few people ever file claims.

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    Confused with Health Insurance

    Once in a while, indemnification plans confuse hospital customer service representatives because they think the money is to be used the same as health insurance: to pay medical bills.. This is not the case, and the insured might have to explain this to the representative. It specifically covers a loss, but it is up to the policy holder how to use the money. Usually you must present a bill for the incident, and then see if it is covered under your policy. Often there is a specific amount of money allotted per incident. For example, if Mr. Smith has a heart attack. For each day he is in the hospital, his special indemnity policy says he will receive $5,000 per day. After four days, he is eligible for a $20,000 check in the mail. Now he can use the money to make up his salary loss for when he was out of work or to pay his insurance deductible.

    Indemnification policies fill in the gaps where other insurances leave holes. Disability insurance has a certain amount of time before it will begin paying out. Health insurance has deductibles. Money from these indemnification policies will provide funds to offset the money you would have to pay out of your pocket. They may be small, inexpensive policies, but they can offer a real "bang for the buck."


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