The main ideas of insurance are the rules of activity or conduct agreed by the stakeholders involved in the insurance business. A few principles of utmost importance to a valid insurance contract are the following:
Utmost Good Faith: A bond of insurance is a bond of begrime fidei i.e., a bond sought on utmost good faith. The insurer as well as the insured should display good faith towards each other in repute to the bond. It is the job of the insured to willingly make full, accurate disclosure of all necessary points, material to the risk being shown and the insurer to make clear all the terms and conditions in the insurance bond. Thus, it is compulsory on the proposer to reveal all material points about the subject matter of the proposed insurance. Any point, which is probably going to affect the mind of a judicious insurer in deciding to agree with the proposal of insurance or in fixing the rate of premium is material for this objective. Failure to make disclosure of material points by the insured makes the bond of insurance faulty at the discretion of the insurer.
Examples of Facts to be Disclosed Fire Insurance: Construction of building, fire detection and fire fighting equipment; nature of its use. Motor Insurance: Type of vehicle; driver details. Personal Accident Insurance: Age, height, weight, occupation, previous medical history. Life Insurance: Age, previous medical history, smoking/drinking habits.
Insurable Interest: The insured is suppose to have an insurable interest to insure himself regarding that subject matter. An important point of this idea is that 'it is not the house, ship, machinery, potential liability of life that is insured, but it is the financial interest of the insured in them, which is insured.' Insurable interest means some financial interest in the relevant discussion of the insurance bond. The insured must show some interest in the safeguard of the thing or life insured, so that he/she will endure financially on the happening of the accident against which he/she is insured. With insurance of property matter, insurable curiosity of the insured in the relevant matter of the insurance should be there at the time of happening of the accident. To show an insurable interest however, its unnecessary that one has to be the owner . For example, even a trustee having certain interests can insure their property.
Indemnity: All insurance bonds of fire or marine insurance are bonds of security. In accordance to it, the insurer is responsible to put the insured, in the event of damage, in the same state that he occupied just before the occurrence of the event insured against. We can say that the insurer takes responsibility to reimburse the insured for the damage caused to him/her due to destruction of property insured. The reimbursement payable and the loss suffered are to be measured with money. Here the principle of indemnity cannot be applied.
Proximate Cause: By this principle it states that the insured will be reimbursed only if the damage caused is in accordance to the points given in the policy. When there happen to be more than two causes then the cause which is proximate and led to the natural consequence of damage is taken into to consideration. This is the same even in the case of any mishap.
Subrogation: The insurer has the right to stand in the position of the insured after the claim is done, only when the insured is reimbursed from any other alternative source. When the insured is compensated then the right to the property goes in the hands of the insurer. This is to make sure that the insured is not allowed to make any profit, by selling the damaged property or in the case of recovering of lost property.
Contribution: According to this principle the insurer has the right to call other insurers as well to contribute to the loss. This shows that in the case of more than one insurer the reimbursement has to shared by them in proportion to the amount assured by each. If there happens to be more than one policy then the insured has no right to claim more than the full amount than the damage caused . When one insurer pays everything then the right of asking the other insurer for money ceases.
Mitigation: according to this principle the insured is bound to take certain steps to minimize the loss amount. Suppose goods kept in a store house catch fire then it's the duty of the insured to take certain steps to save them. The insured is not suppose to show carelessness that he will be insured later. If the person does not take reasonable care of being cautious then the right of claim maybe lost.
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