Utmost good faith or the Principle of Utmost Good Faith is one of the most fundamental laws that are applicable in insurance. It is also known as ubberimae fidei in Latin.
The principle of utmost good faith states that the insurer and insured both must be transparent and disclose all the essential information required before signing up for an insurance policy.
It states that both the parties must disclose all the material facts before subscribing to the policy. Material facts are those facts which increase the risk factor associated with the insurance policy.
The insurer needs to disclose all the investment strategies and the insured needs to disclose any medical history, existing health conditions, or any kind of habits like drug abuse, alcoholism or smoking.
It can happen that in situations of misrepresentation of facts by either the insurer or the insured, the terms of contract will be violated and the policy becomes void.
The presence of a medical record will lead to higher premium or overall rejection of the policy. Similarly, the insurer has to inform the insured about the exclusions present in the policy.
This concludes our article on the topic of Principle of Utmost Good Faith, which is an important topic in Business Studies for Commerce students. For more such interesting articles, stay tuned to BYJU’S.