The principle of indemnity enables the worker (insured) to be restored to the same financial condition as s/he was, before the loss occurred due to the workplace accident. In workers’ compensation insurance, ‘to indemnify’ means to make payments to the injured or sick employee or to their family members (if in case the death has occurred) wherein the injury has occurred because of the employment. Similarly, the workers are also entitled to receive compensation in the case they suffer from any occupational diseases or job-related accidents.
Workers’ compensation is divided into two components which are as follows-
Indemnity Cost/Cash Payments for the lost time:
Indemnity cost or cash payments are whole sum or lump sum payments made to the insured because of any job-related accident. This is calculated based on his/her average salary per day. It is calculated for the period until the worker’s condition is stable and is fit to return to the work like before.
In case of the permanent disability or a major loss because of on-the-job injury, the indemnity would be the amount offered to the worker for their respectable survival for the rest of his life. In case of the occurrence of death, the death benefits are made to the family members.
Payments for Medical Expenses:
If a worker is injured in the accident and undergoes medical treatment then the injured worker is supposed to receive the payments in lieu of the medical bills produced up to a limit. In such cases, workmen compensation insurance will pay for all his medical expenses till the time of his recovery.
Additional Read: How to Calculate a Settlement in a Workman’s Compensation Injury?
Case for Indemnity in Workers’ Compensation Policy
RWT Enterprises is a mineral water processing plant and has a headcount of around 70 in its manufacturing unit. RWT had bought workmen compensation insurance and had covered all the workers. One of the employees, Jatin, met with an accident while working in the unit. The doctors recommended he take rest for 15 days along with a course of medicines. In this case, Jatin will be getting two week’s salary (Indemnity Cost) and the medical costs.
If his average salary for a day is Rs. 700 and the medical care costed him Rs 2500, then in that case the indemnity will be Rs 12,300 (700*14+2500).