Explain Principle Of Insurance | Insurance Law

Explain Principle Of Insurance | Insurance Law

Introduction

The main objective of every insurance contract is to give financial security and protection to the insured from any future uncertainties.
Seeking profit opportunities by reporting false occurrences, violates the terms and conditions of an insurance contract.

7 PRINCIPLES

1)Principle of Uberrimae fidei (Utmost Good Faith)
2)Principle of Insurance Interest
3)Principle of Indemnity
4)Principle of Contribution
5)Principle of Subrogation
6)Principle of Loss Minimization and
7)Principle of Causa Proxima                  (Nearest Cause)

Explain

1) Principle of Uberrimae Fidei (Utmost Good Faith)

Principle of Uberrimae fidei, also known as the Principle of Utmost Good Faith, Is the primary principle if insurance. According to this principle, the insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith.

The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject matter of insurance. The insurer's liability gets void (i.e legally revoked or cancelled) if any facts, about the subject matter of insurance are either omitted, hidden, falsified or presented in a wrong manner by the insured.


2) Principle of Insurable Interest
The principle of insurable interest states that the person getting insured must have insurable interest in the object of insurance. A person has an insurable interest when the physical existence of the insured object gives him some gain but its non-existence will give him a loss. In other words, the insured person must suffer some financial loss by the damage of the insured object.


3) Principle of Indemnity
Indemnity means security, protection and compensation given against damage, loss or injury. According to the principle of indemnity,an insurance contract is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. In an insurance contract, the amount of compensations paid is in proportion to the incurred losses. The amount of compensations is limited to the amount assured or the actual losses, whichever is less. However, in case of life insurance, the principle of indemnity does not apply because the value of human life cannot be measured in terms of money.

4) Principle of Contribution
Principle of Contribution is a corollary of the principle of indemnity. It applies to all contracts of indemnity, if the insured has taken out more than one policy on the same subject matter. According to this principle,the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation then that insurer can claim pays full compensation then that insurer can claim proportionate claim from the oher insurers.

5) Principle of Subrogation
Principle of subrogation is an extension and another corollary of the principle of indemnity. It also applies to all contracts of indemnity.
According to the principle of subrogation, when the insured is compensated for the losses due to his insured property, then the ownership right of such property shifts to the insurer.

6) Principle of Loss Minimization
According to the Principle of Loss Minimiation, insured must always try his level best to minimize the loss of his insured property, in case of uncertain events like a fire outbreak or blast etc. The insured must take all possible measures and necessary steps to control and reduce the losses in a such a scenario. The insured must not neglect and behave irresponsibly during such events just because the property is insured. Hence it is a responsibility of the insured to protect his insured property and avoid further losses.

7) Principle of Causa Proxima (Nearest Cause)
Principle of Causa Proxima, or in simple english words, the Principle of Proximate Cause, means when a loss is caused by more than one causes, the proximate or the nearest or the closest caused be taken into consideration to decide the liability of the insurer.