PRINCIPLES OF INSURANCE

7 PRINCIPLES OF INSURANCE YOU MUST KNOW

The principle of utmost good faith requires that both the insured and the insurer act towards each other with complete honesty and transparency. This means that the insured must disclose all material facts relevant to the insurance contract, such as any previous claims or known risks, and the insurer must be truthful about the terms and conditions of the policy. This principle is based on the idea that insurance is a contract of trust and mutual cooperation.

The principle of insurable interest states that the insured must have a financial interest in the property or life that is being insured. This ensures that the insured has a valid reason for seeking coverage, as they would suffer a financial loss if the event insured against were to occur. This principle is in place to prevent individuals from taking out insurance policies on things they have no interest in, such as insuring someone else's property.

The principle of indemnity states that the purpose of insurance is to compensate the insured for their loss. The insurer is not responsible for making a profit or covering any additional expenses. This principle is in place to ensure that the insured is not left in a better financial position than they were before the loss occurred.

                              PRINCIPLES OF INSURANCE.

The principle of proximate cause states that the loss must be the direct result of a covered risk. In other words, the cause of the loss must be closely connected to the event that is insured against. This principle helps to prevent fraudulent claims, as it ensures that the loss is related to the specific event that is insured against.

The principle of subrogation allows the insurer to take over the legal rights of the insured to recover any damages or losses from a third party who may be responsible for causing the loss. This means that if a third party is found to be liable for the loss, the insurer can take legal action against them and recover any money paid out to the insured.

The principle of contribution states that in the event that more than one insurance policy covers the same loss, the policies will share the loss in proportion to the amount of coverage provided by each policy. This principle is in place to ensure that the insured is not overcompensated for their loss, and that the costs are shared among the different insurance policies.

The principle of large number states that the larger the number of people who are exposed to a particular risk, the more predictable the losses will be. Insurers spread the risk over large group of people by insuring many individuals, this principle allows the insurer to spread the risk among many individuals to reduce the overall impact of losses.