What type of insurance requires the insured to have a loss before the benefits are paid?

Indemnity insurance is specifically designed to compensate the insured for losses incurred. The central concept behind this type of insurance is that the insured should not profit from a loss; instead, it is intended to restore them to their pre-loss financial condition. This principle ensures that benefits are only paid out when a covered loss occurs, which aligns with the notion of indemnity—making the insured whole again, rather than providing a windfall.

In contrast to indemnity, whole life and term insurance provide benefits upon certain circumstances such as death or at the end of the term without first requiring a loss related to property or liability. Liability insurance covers claims made against the insured for damages they are legally responsible for, but that also does not rely on an insured loss in the same way that indemnity insurance does.