Principles of Insurance
- Utmost good faith- Insurable interest
- Indemnity
- Contribution
- Subrogation
- Proximate- Cause
Utmost Good Faith
The principle of utmost good faith, implies that the insured should tell to the insurer all information about life or property which is being insured and also the insurer should reveal to the insured all the information and conditions affecting the agreement.This information is much more needed in making a decision as to whether the insurance risk is accepted or not and to determine the premium.
Both parties involved in policy are required to notify any subsequent changes in above information.
The Facts that should be revealed by the Insured under the principles of Utmost Good Faith
In Life Insurance
- Name of the person- date of birth
- Health condition
- Income
- occupation
- Information regarding dependents
- Civil status
- Residence
In Property ( general) Insurance
- The cost of the property- Thee present value of the property
- If mortgaged details of such mortgage
- Estimated life of the asset
The Facts that should be disclosed by the insurer under the principle of Utmost good Faith
- The value of the policy- The value of the premium
- The conditions
- The conditions for renewal
- Thee surrender value and the relevant provisions to make it a paid up policy.
- Instances when compensation is not paid
- Maturity of the policy
- The other benefits
Why Utmost Good Faith Considered as a special Principle of Insurance ?
This principle differentiate insurance contract from other commercial contracts. Normally commercial contracts are subject to the doctrine of " CAVEAT EMPTOR". That means " let the buyer be aware ". But in insurance , parties involve in the agreement should not be worried about the risk that they have due to the principle of Utmost Good Faith. Because it ensure that the contract trustworthy .
Why this principle is breached by an insured party what the available options with the insurer?
- cancel the insurance agreement- Avoid of compensate for the damages
- Take a legal action against insured
- Ex - gracia /Ex - Gration payment
Ex - gracia / Ex - gration payment
In several situations insurer decides to claim for damages although the insured breached the principle of Utmost Good Faith
- Misrepresentation of information by the insurance agent
- When insured misunderstood the conditions and the information regarding to the insurance agreement.
Insurable Interest
This is the legal right of a person to insure property or life . To obtain that right the following three requirements have to be fulfilled.- There should be an object , life or property which is liable to be damaged.
- What is intended to be insured should be that property or life .
- An advantage of having the property and a disadvantage of losing the property .
Examples for insurable interest
- Husband towards his wife and the wife towards her husband .
- For a singer regarding his voice .
- For a motor vehicle owner and the driver.
- For a film director regarding the actors and actresses acting in his film.
- For the owner and the tenant regarding a building .
- the employer has an insurable interest over his employees.
If the public can take a cover to any life or property without considering the ownership of it, they will damage those property of life and make profits. But this principle avoid to make profit by harming public property and life
Proximate Cause
When a damage is caused to an insured property compensation could be claimed only when the damage is caused by an insured risk. Even though it had occurred due to many causes if the proximate cause has been covered by the insurance policy, compensation can be obtained .
Eg: A building could be damaged due to an earthquake , cyclone or due to fire simultaneously . Think that the property will be damaged owing to fire. Then if the property is protected under fire insurance policy then the insured is eligible to rightfully claim compensation.
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