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What are Principles of Insurance

 

Principles of Insurance

Types of Insurance

Major players in insurance Sector in India

(A) Insurable Interest

Insurable interest means that the person opting for insurance must have pecuniary interest in the property he is going to get insured and will suffer financial loss on the occurrence of the insured event.   This is one of the essential requirements of any insurance contract.   Therefore, a person can go for insurance of only those properties where he stands to benefit by the safety of the property, and will suffer loss, damage, injury if any harm takes place to such property.   Thus, if you want to insure Taj Mahal or Red Fort, you will not be allowed to do so as you do not have any pecuniary interest in these properties.

 

(B) Principle of utmost Good faith (Uberrima Fides)

  Like in other contracts, the insurance contract must be based on good faith.   If the insurance contract is obtained by way of fraud or misrepresentation it is void.

 

(C) Material Facts Disclosure

 In the Insurance contract, the proposer is required  to  disclose to the insurer all the material facts in respect of  the proposed insurance.   This duty of disclosing the material facts not only applies to the material facts which are known to him but also extends to material facts which he is supposed  to know. 

Thus, in case of Life Insurance the proposer must disclose the true age and details of the existing illnesses / diseases.  Similarly, in case of the insurance of a building against fire, the proposer must disclose the details of the goods stored if such goods are of hazardous nature.

 

(D) Principle of Indemnity

  The insurance contract should always be a contract of indemnity only  and nothing more.  According to this principle, the insurance contract should be such that in case of loss due to the eventialities mentioned in the contract, the insured should be  neither better off nor worse off  after receiving the insured amount.  The main object of this principle is to ensure that the insured is not able to use this contract for speculation or gambling.