Principles of insurance

                               
                             PRINCIPLES OF INSURANCE

 

The principles of insurance.

Risk distribution among a group of people is the concept of insurance. As a result, insurance is based on cooperation.

To ensure the correct functioning of an insurance contract, both the insurer and the insured must adhere to the following seven insurance principles:

1. Utmost Good Faith
2. Proximate Cause
3. Insurable Interest
4. Indemnity
   
5. Subrogation
6. Contribution
7. Loss Minimization

Each principle of insurance in details discussed below: –

• Utmost Good Faith: The fundamental principle is that each of the parties in an insurance contract ought to act in honestness towards one another, i.e. they have to offer clear and sententious data associated with the terms and conditions of the contract.

The insured ought to offer all the data associated with the topic matter, and therefore the insurance company should provide precise details concerning the contract.

• Proximate cause: ‘Causa Proxima or closest cause is another name for proximate cause. When a loss is caused by two or more causes, this principle applies. The insurance company will investigate the most recent cause of loss. The insurer must pay compensation if the proximate cause is the one for which the property is insured. If it is not a cause for which the property is insured, the insured will not be compensated.

The proximate cause is the cause that was genuinely accountable for the loss.

If the peril chosen as the proximate cause is covered, the loss is considered to have been caused by the covered peril, and the loss is considered covered.

• Insurable Interest: Insurable interest simply means that the contract’s subject matter must give some financial benefit to the insured (or policyholder) by simply existing and would result in a financial loss if damaged, destroyed, stolen, or lost.

The insured must have an insurable interest in the insurance contract’s subject matter.

The subject’s owner is said to have an insurable interest until they no longer own it.

• Indemnity: Indemnity is a promise to return the insured to the position they were in prior to the unforeseen event that resulted in a loss. The insured is compensated by the insurer (provider) (policyholder).

The insurance provider promises to reimburse the policyholder for the amount of the loss up to the contract’s maximum limit.

Essentially, this is the most important portion of the contract for the insurance policyholder. It states that they have the right to be compensated or, in other words, indemnified for their loss.

• Subrogation: Subrogation occurs when one creditor (the insurance company) takes the place of another (another insurance company representing the person responsible for the loss).

After the insured (policyholder) has been reimbursed for a loss on an insured piece of property, the insurer gains possession of the property.

• Contribution: Contribution creates a symbiotic relationship between all of the insurance contracts engaged in an incident or dealing with the same subject.

Contribution permits the insured to seek indemnity from all of the insurance contracts involved in their claim to the amount of real loss.

• Loss Minimisation: This establishes an insurance contract, which is perhaps the simplest. In the event of an unforeseen occurrence, it is the insured’s responsibility to take all reasonable efforts to reduce the loss to the covered property.

Insurance policies aren’t supposed to be about getting free items if anything horrible happens. As a result, the insured has some responsibility for taking all reasonable steps to reduce the property’s loss.