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 Principles of insurance.

In this article, I will tell you about the principles of insurance. Friends, whether you are a student or an insurance buyer, or an insurance agent, you will be familiar with the principles of insurance. In this article, I will explain the principles of insurance. In a very simple and clear way. I will use real-life examples to illustrate the principles.

                                                    Principles of insurance.

 

 The first principle of insurance is the principle of utmost good faith. According to this principle,/the person who is getting insurance shall willingly disclose all the required information incomplete and true knowledge.

You shall not find any information asked by the insurance company. So you shall correctly inform about: (i) Your health- if you have any kind of disease. your past medical history, any medicines you are taking etc. (ii) you should also tell.

 

correctly about your income (iii), you should also tell correctly about your family history. like if any of your parents or your siblings have suffered from any kind of disease etc.

 

(iv) you should also tell correctly about your age, generally, you have to produce any document which contains the date of birth. (iv) you should also correctly tell about.

 

where you work, in which industry you work, how risky is your job etc. Now let’s see.

 

principle number two,

 

 which is the principle of insurable interest. According to this principle,

you should have a personal interest in the subject matter of insurance. That means if you lose those persons or things you have a direct loss. So, for example, you can take insurance for your son, your wife, and your parents.

 

 but you cannot take insurance for your neighbor's son or for your friends. Losing your neighbor's son or your friend may have an emotional loss to you. but it will not have any kind of financial loss.

 

Similarly, you can take insurance for your car, your house, or your property but you cannot take insurance for your friend's car, house or property.

 

 Now the principle number 3

 

of the insurance is the principle of indemnity. According to this

principle, insurance is not made for making a profit, but

it is made for compensating you against the loss that has been incurred to you. That means compensation paid cannot be more than the losses incurred, a person earning rupees 5 lakh a year cannot take an insurance plan of rupees 500 crores.

 

 Or you cannot take car insurance of rupees 10 lakh for a car pricing Rupees 500000. This is the reason insurance companies do not provide term insurance to an unemployed person, or a housewife, or a student.

 

 

 principle of contribution.

 

This principle is applicable when there are more than two insurers for the same underlying property or asset. In this case the insurance

company has the right to share the loss with other insurancers.

 

 Now suppose you have taken insurance of rupees 10 lakh from one company and of rupees 10 lakh from another company. And in a fire incident. your total loss is rupees 10 lakh. Now you go to the insurance company.

 

number 1 and claim the entire loss. The insurance company will pay you the compensation, however, now the insurance company number one will approach the other insurer, and ask for 500000 rupees. Because both the insurance companies had an equal share in your property.

 

This principle does not apply for Life Insurance, wherein you can have multiple insurances, but still you have the right to claim insurance claims from all the insurance companies.

 

 principle of subrogation,

 

 according to this principle once the insured is paid for the losses, then the ownership right of such property is shipped to the insurance. You

cannot take the benefit from the damaged asset. For example, if your bike or car is stolen and the insurance company has paid you the compensation, thereafter you cannot have ownership On The Lost car or bike.

 

 Now after some time, if the insurance company finds the bike or car it can sell them and you cannot make any claim from the insurance company, because you have already been paid for your damage.

 

the principle is the principle of loss

 

minimization. According to this principle, you should put all the effort to minimize the loss to the insured asset. Opposite your car is stolen then you should immediately call the police call the insurance company and tell them about the loss.

 

If there is a fire in your car, you should immediately call the fire brigade or if you have water or fire extinguishers you should use them. so that the loss can be minimized.

 

 You cannot simply sit and watch, feeling that you have already get them insured and the insurance company. will pay you the compensation for the damage.

 

 principle of Causa Proxima

 

(Nearest Cause). According to this principle if your loss has been caused because of two things. then the nearest cause should be taken into consideration to decide the liability of the insurance.

 

 For example, there is a ship and the Rat have made a hole in it, because of which water entered into the ship. And the goods loaded in the ship have damaged. In this case, there are two causes of the incident, the first is the rat and the second is seawater.

 

 Even though rats have made holes in the ship, but the actual cause of the damage was seawater. So, here the nearest cause is damage due to seawater.

 

 So, friends, these were the principles of insurance and I hope you have understood them clearly.

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