Discuss the various principles of contract of insurance.
Discuss the various principles of contract of insurance.
Principles of contract of Insurance are explained below :
(i) Utmost Good Faith—It implies that the applicant for an insurance policy i.e., the insured should reveal all material facts about the subject to the insured and the insurer to make clear all the terms and conditions in the insurance contract. Failure to make disclosure of material facts by any of the party to contract makes the contract voidable at their discretion.
(ii) Insurable Interest—Insurable interest means some pecuniary interest in the subject matter of the insurance contract. According to this principle the insured must have an interest in the preservation of the subject so that he/she will suffer financially on the happening of the event against which he/she is insured.
(iii) Indemnity—According to it the insurer undertake to compensate the insured for the loss caused to him/her due to damage or destruction of property insured. The principle of indemnity is not applicable to life insurance as the life of a human being cannot be compensated.
(iv) Proximate Cause —This principle states that when the stated loss is the result of two or more causes, the proximate causes i.e., the direct and the most dominant and most effective cause of which the loss is the natural consequence, should be taken into consideration.
(v) Subrogation—It refers to the right of the insurer to stand in the place of the insured, after settlement of a claim as far as the right of insured in respect of recovery from an alternative source is involved. This is because the insured should not be allowed to make any profit, by selling the damaged property or in the case of lost property being recovered.
Principles of contract of Insurance are explained below :
(i) Utmost Good Faith—It implies that the applicant for an insurance policy i.e., the insured should reveal all material facts about the subject to the insured and the insurer to make clear all the terms and conditions in the insurance contract. Failure to make disclosure of material facts by any of the party to contract makes the contract voidable at their discretion.
(ii) Insurable Interest—Insurable interest means some pecuniary interest in the subject matter of the insurance contract. According to this principle the insured must have an interest in the preservation of the subject so that he/she will suffer financially on the happening of the event against which he/she is insured.
(iii) Indemnity—According to it the insurer undertake to compensate the insured for the loss caused to him/her due to damage or destruction of property insured. The principle of indemnity is not applicable to life insurance as the life of a human being cannot be compensated.
(iv) Proximate Cause —This principle states that when the stated loss is the result of two or more causes, the proximate causes i.e., the direct and the most dominant and most effective cause of which the loss is the natural consequence, should be taken into consideration.
(v) Subrogation—It refers to the right of the insurer to stand in the place of the insured, after settlement of a claim as far as the right of insured in respect of recovery from an alternative source is involved. This is because the insured should not be allowed to make any profit, by selling the damaged property or in the case of lost property being recovered.
