Explain the principles of Insurance.
Explain the principles of Insurance.
These principles are as follows :
(i) Utmost good faith: An insurance contract is based on utmost good faith of both the parties i.e. insurer and insured. Utmost good faith implies that the applicant for an insurance policy should reveal all material facts about the subject to be insured. Each fact that is likely to influence the mind of the prudent insurer in deciding whether to accept or reject the proposal or in fixing the rate of premium is material fact for this purpose. Similarly, the insurer is bound to exercise the same good faith in disclosing the scope of the insurance which he is prepared to grant. Failure to make disclosure of material facts by the insured makes the contract of insurance voidable at the discretion of the insurers.
(ii) Insurable interest: Insurable interest means some pecuniary interest in the subject matter of insurance contract. It must be lawful and clear that the insured has an interest in the preservation of thing or life insured so that he will suffer financially on the happening of the event against which he is insured. In case of marine and fire insurance, the insurable interest in the subject matter of the insurance must exist at the time of the happening of the event unlike in life insurance.
(iii) Indemnity: The purpose of all contracts of indemnity is to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The objective behind making this principle is to ensure that the insured does not make any profit by recovering more than the amount of actual loss to him by the event insured against such insurance may be for a sum less than the actual value of the property but usually it should not be for more.
(iv) Proximate cause: An insurance policy is designed to provide compensation only for such losses as are caused by the perils which are stated in the policy. For example, the ship is anchored at a port. Due to short circuit, the ship catches fire and gets damaged. In such a case, the insurance company is not liable to bear the loss because the proximate cause of loss is fire which is not covered by the marine policy. The damage caused by fire is only a remote cause of the loss and is therefore irrelevant.
(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.
(vi) Mitigation: This principle states that it is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. The insured must behave with great prudence and not be careless just because these is an insurance cover. If a reasonable care is not taken like a prudent person, then this claim from insurance company may be lost.
These principles are as follows :
(i) Utmost good faith: An insurance contract is based on utmost good faith of both the parties i.e. insurer and insured. Utmost good faith implies that the applicant for an insurance policy should reveal all material facts about the subject to be insured. Each fact that is likely to influence the mind of the prudent insurer in deciding whether to accept or reject the proposal or in fixing the rate of premium is material fact for this purpose. Similarly, the insurer is bound to exercise the same good faith in disclosing the scope of the insurance which he is prepared to grant. Failure to make disclosure of material facts by the insured makes the contract of insurance voidable at the discretion of the insurers.
(ii) Insurable interest: Insurable interest means some pecuniary interest in the subject matter of insurance contract. It must be lawful and clear that the insured has an interest in the preservation of thing or life insured so that he will suffer financially on the happening of the event against which he is insured. In case of marine and fire insurance, the insurable interest in the subject matter of the insurance must exist at the time of the happening of the event unlike in life insurance.
(iii) Indemnity: The purpose of all contracts of indemnity is to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The objective behind making this principle is to ensure that the insured does not make any profit by recovering more than the amount of actual loss to him by the event insured against such insurance may be for a sum less than the actual value of the property but usually it should not be for more.
(iv) Proximate cause: An insurance policy is designed to provide compensation only for such losses as are caused by the perils which are stated in the policy. For example, the ship is anchored at a port. Due to short circuit, the ship catches fire and gets damaged. In such a case, the insurance company is not liable to bear the loss because the proximate cause of loss is fire which is not covered by the marine policy. The damage caused by fire is only a remote cause of the loss and is therefore irrelevant.
(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.
(vi) Mitigation: This principle states that it is the duty of the insured to take reasonable steps to minimise the loss or damage to the insured property. The insured must behave with great prudence and not be careless just because these is an insurance cover. If a reasonable care is not taken like a prudent person, then this claim from insurance company may be lost.
