As a general rule, compensation is created in contracts, either in the form of a separate compensation contract or in the form of a compensation clause in a contract. This language is contained in cases where there is a possibility of loss or damage to a party during the term of the contract or because of the circumstances of the contract. The right to compensation and the obligation to compensate generally arise from a contractual agreement which, as a rule, protects against liability, loss or damage. It is a duty of compensation that does not arise from a written agreement, but rather from the circumstances or behaviour of the parties concerned. A practical example is a business relationship between the agent and the captain. If the client refuses to accept the goods that the agent provides, the agent can sell them to others; However, if the broker suffers a loss on the sale, the client is required to pay for it. The real estate credit also contains indemnification clauses. For example, in the case of an apartment for rent, a tenant is usually liable for damages due to negligence, fines, legal fees, and much more according to the agreement. Compensation agreements are often found in construction contracts. In this context, there are several types: compensation is a contractual agreement between two parties.

In this agreement, one party agrees to pay for any losses or damage caused by another party. A typical example is an insurance contract in which the insurer or insured agrees to compensate the other (the insured or compensation) for damages or losses in return for premiums paid by the insured to the insurer. The insurer compensates the policyholder with damages – that is, promises to do individual or commercial damages for a covered loss. One of the best examples of damages is insurance which, by an insurance company, compensates a property owner for losses or damages to that property. In principle, the contractor transfers the risk of negligence to the insurance company. Compensation means security or protection from financial liability. It usually takes the form of a contractual agreement between the parties, in which one party agrees to pay for the losses or damages suffered by the other party. Under corporate law, a compensation agreement is used to keep directors and executives of companies free from personal liability when the company is sued or damages. The exclusions from the agreement are described. A common exclusion is negligence or fault of the other. In other words, if the beneficiary can be proved negligently, the compensation does not work (the compensation is at fault and can be sued). Compensation may also relate to a statutory exemption from loss or damages, as in the case of a compensation clause in a contract in which one party agrees to take responsibility for the loss or damage of another party.

In this case, compensation has the general meaning of „keeping it unscathed.“ Compensation may take the form of cash payments or repairs or replacements, depending on the terms of the compensation contract. For example, with respect to household insurance, the owner pays insurance premiums to the insurance company in return for the assurance that the homeowner will be compensated if the home suffers damage from fires, natural disasters or other hazards specified in the insurance contract.