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Insurance BasicsFollowing are the basic essentials or requirements of insurance, irrespective of the type of insurance involved. Principle of Utmost good faith It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal. A material fact is a fact which would influence the mind of a prudent underwriter in deciding whether to accept a risk for insurance and on what terms. Thus, the insured must reveal the exact nature and type of the risks that he / she passes on to the insurer, while at the same time the insurer must make sure that the underlying contract fits the needs of, and benefits the insured. QUICK ADVICE To avoid repudiation of your claim, cooperate with your insurer by disclosing all the material facts associated with the risk to be insured, as and when required by the insurer. Where either the Insurer or the Insured fails to follow the principle of utmost good faith, the insurance contract is deemed null and void. Principle of Insurable Interest The law states that in order for an insurance policy to be valid, the policyholder must have a sufficient interest in the subject matter of the insurance. Broadly speaking, the doctrine requires that a policyholder must gain a benefit from the preservation of the subject matter of the insurance or suffer a disadvantage should it be lost. People who are policyholders but not the owners of the insured substances, from deliberately causing loss to the substances in order to claim compensation and deriving undue benefits from insurance business..Principle of Indemnity With contracts of indemnity, a claim must not exceed the actual loss. Even further to that, a claim cannot exceed the extent of your insurable interest in the insured asset. Indemnity is monetary compensation that aims to return the insured to the same financial position he enjoyed before the loss occurred. Life insurance and personal accident policy are therefore not contracts of indemnity. A monetary value cannot be easily placed on life and limb. However, the idea behindcindemnity is used for financial underwriting where life insurance is concerned. As such life insurers limit the amount of coverage you can have, based on your income. Principle of Subrogation Simply stated, the right of subrogation is the right to pursue someone else's claim. If you are subrogated to someone's claim, it sounds as though you are somehow subordinated to it ‐‐ but that's not what it means. It means that you may pursue it as though it were your own. It can arise by the express agreement of the parties, or automatically by operation of law. |
