Indemnity insurance operates on the core principle of financial restoration, meaning its primary objective is to return the policyholder to the exact financial position they occupied before a covered loss occurred, without allowing them to turn a profit from the incident. When a policyholder faces a covered claim—such as a professional negligence lawsuit, property loss, or specific liability event—they file a formal claim with their insurance carrier. The insurer investigates the validity of the claim, assesses the extent of the financial damage, and disburses funds up to the policy limit to cover legal fees, settlements, or repair expenses, subject to any applicable deductibles or copayments established in the original contract terms.