Which term describes the act of assuming the financial consequences of another party's legal liability?

Which term describes the act of assuming the financial consequences of another party's legal liability?

• A. Indemnification
• B. Waiver
• C. Subrogation
• D. Negligence

Answer: (A)

Indemnification is the act of assuming the financial consequences of another party's legal liability. In insurance terms, it means the insurer agrees to compensate the insured for losses or damages the insured is legally liable for, restoring them to the financial position they were in before the loss. This can happen by paying the claim or by covering costs up to policy limits, so the insured doesn’t bear the loss personally. It differs from a waiver, which relinquishes a right; from subrogation, which occurs after payment when the insurer seeks recovery from the responsible third party; and from negligence, which is the behavior that creates liability rather than the transfer of liability itself.

Indemnification is the act of assuming the financial consequences of another party's legal liability. In insurance terms, it means the insurer agrees to compensate the insured for losses or damages the insured is legally liable for, restoring them to the financial position they were in before the loss. This can happen by paying the claim or by covering costs up to policy limits, so the insured doesn’t bear the loss personally. It differs from a waiver, which relinquishes a right; from subrogation, which occurs after payment when the insurer seeks recovery from the responsible third party; and from negligence, which is the behavior that creates liability rather than the transfer of liability itself.