Principals of insurance


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From Rajiv Ranjan (AIMT) for MBA students

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Principals of insurance

  2. 2. PRINCIPLES OF INSURANCE The main objective of every insurance contract is to give financial security and protection to the insured from any future uncertainties. Insured must never ever try to misuse this safe financial cover. Seeking profit opportunities by reporting false occurrences violates the terms and conditions of an insurance contract. This breaks trust, results in breaching of a contract and invites legal penalties. An insurer must always investigate any doubtable insurance claims. It is also a duty of the insurer to accept and approve all genuine insurance claims made, as early as possible without any furtherFebruary 25, 2013 delays and annoying hindrances 2
  3. 3. Seven Principles of Insurance The seven principles of insurance are :- 1. Principle of Uberrimae fidei (Utmost Good Faith), 2. Principle of Insurable 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).February 25, 2013 3
  4. 4. 1. Principle of Uberrimae fidei (Utmost Good Faith) 1. Both the parties i.e. the insured and the insurer should a good faith towards each other. 2. The insurer must provide the insured complete , correct and clear information of subject matter. 3. The insurer must provide the insured complete, correct and clear information regarding terms and conditions of the contract. 4. This principle is applicable to all contracts of insurance i.e. life, fire, and marine insurance. 4February 25, 2013
  5. 5. 2. Principle of Insurable Interest • The insured must have insurable interest in the subject matter of insurance. • In Life insurance it refers to the insured. • In marine insurance it is enough if the insurable interest exists only at the time of occurrence of the loss. • In Fire and general insurance , it must be present at the time of taking policy and also at the time of the occurrence of the loss. • The owner of the party is said to have insurable interest as long as he is the owner of the it. • It is applicable to all contract of insurance.February 25, 2013 5
  6. 6. 3. Principle of Indemnity • Indemnity means a guarantee or assurance to put the insured in the same position in which he was immediately prior to the happening of the uncertain event. The insurer undertakes to make good the loss. • It is applicable to fire, marine and other general insurance. • Under this the insurer agrees to compensate the insured for the actual loss suffered.February 25, 2013 6
  7. 7. 4. Principle of Contribution • The principle is a corollary of the principle of indemnity. • It is applicable to all contracts of indemnity. • Under this principle the insured can claim the compensation only to the extent of actual loss from any one insurer or all the insurers.February 25, 2013 7
  8. 8. 5. Principle of Subrogation a. As per the principle after the insured is compensated for the loss due to damage to property insured, then the right of ownership of such property passes on the insurer. b. This principle is corollary of the principle of indemnity and is applicable to all contracts of indemnity.February 25, 2013 8
  9. 9. 6. Principle of Loss Minimization • Under this principle , it is the duty of the insured to take all possible steps to minimize the loss to the insured property on the happening of uncertain event.February 25, 2013 9
  10. 10. 7. Principle of Causa Proxima (Nearest Cause) • The loss of insured property can be caused by more than one cause in succession to another. • The property may be insured against some causes and not against all causes. • In such an instance, the proximate cause or nearest cause of loss is to be found out. • If the proximate cause is the one which is insured against, the insurance company is bound to pay the compensation and viceFebruary 25, 2013 versa. 10
  11. 11. Thank youFebruary 25, 2013 11