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7 Basic General Insurance Principles

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7 Basic General Insurance Principles 1

The main objective of each insurance contract is to give financial security and safety to the covered by insurance from any future uncertainties. Insured must ever make an effort to misuse this safe financial cover never. Seeking profit opportunities by reporting false occurrences violates the conditions and conditions of an insurance contract. This breaks trust, results in breaching of a contract and invites legal penalties. Additionally it is a duty of the insurance company to simply accept and approve all genuine insurance statements made, as as possible with no further delays and annoying hindrances early.

The seven concepts of insurance are :-1. 7. Principle of Causa Proxima (Nearest Cause). Principle of Uberrimae fidei (a Latin expression), or in simple british words, the Principle of Utmost Good Faith, is a very basic and first major theory of insurance. According to this principle, the insurance contract must be signed by both parties (i.e insurer and covered by insurance) in an absolute good beliefs or perception or trust. The person getting insured must willingly disclose and surrender to the insurer his complete true information regarding the subject material of insurance.

The insurer’s responsibility gets void (i.e legally revoked or terminated) if any facts, about the subject matter of insurance are either omitted, concealed, presented or falsified in a wrong manner by the covered by insurance. The principle of Uberrimae fidei applies to all sorts of insurance contracts. The process of insurable interest expresses that the person getting insured will need to have insurable fascination with the object of insurance.

A person comes with an insurable interest when the physical life of the insured object provides him some gain but its non-existence will give him a reduction. In simple words, the covered person must suffer some financial loss by the harm of the covered object. For instance :- Who owns a taxicab has insurable desire for the taxicab because he could be getting income from it. But, if it’s sold by him, he shall not need an insurable interest remaining for the reason that taxicab.

From above example, we can conclude that, ownership plays a very essential role in analyzing insurable interest. Every person comes with an insurable fascination with his own life. A merchant has insurable curiosity about his business of trading. Similarly, a creditor has insurable desire for his debtor. Indemnity means security, compensation and protection given against damage, loss or injury.

According to the concept of indemnity, an insurance agreement is signed only for getting protection against unpredicted financial losses arising due to future uncertainties. Insurance contract is not designed for making revenue else its exclusive purpose is to provide compensation in case there is any harm or loss. Within an insurance contract, the amount of compensations paid is in proportion to the incurred deficits. The quantity of compensations is limited to the total amount assured or the real deficits, whichever is less.

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The compensation must not be less or more than the actual damage. Compensation is not paid if the specific loss does not happen due to a specific reason throughout a specific time frame. Thus, insurance is only for giving security against losses rather than for making revenue. However, in case there is life insurance, the basic principle of indemnity will not apply because the value of human being life can’t be measured in conditions of money. Principle of Contribution is a corollary of the theory of indemnity.

It applies to all agreements of indemnity, if the covered has taken out several policy on the same subject matter. According to this principle, the covered can state the compensation and then the degree of actual reduction either from all insurers or from anybody insurer. If one insurance company will pay full settlement that insurance company can state proportionate state from the other insurers then. 60,000 either from AIG Ltd.

36,000 from AIG Ltd. 24,000 from Metlife Ltd. So, if the covered statements full amount of compensation from one insurer then he cannot state the same settlement from other insurance company and make money. Secondly, if one insurance provider pays the full compensation then it can recover the proportionate contribution from the other insurance company. Subrogation means substituting one creditor for another. Principle of Subrogation can be an expansion and another corollary of the concept of indemnity. It pertains to all contracts of indemnity also.