The indemnity principle states that it is agreed by the insurer to pay no greater than the loss amount in actual. Profit should be made by the insured from the loss (Rejda, 2011). The indemnity principle is supported by the value of actual cash. Three methods are there for calculating this value (Rejda, 2011). They are mentioned below: ? Cost of replacement less depreciation: The value of actual cash is defined as costs of replacement less depreciation.