Unlocking the Secrets: The 6 Principles of Insurance You Need to Know
Certainly! The six principles of insurance are fundamental guidelines that govern the workings of insurance policies. Understanding these principles can help clarify how insurance works and why it's structured in certain ways. Here they are:
1. Utmost Good Faith (Uberrimae Fidei):
- Both parties, the insurer and the insured, must disclose all material facts truthfully and completely. Insurance contracts rely heavily on the honesty of both parties to ensure fair dealings.
2. Insurable Interest:
- The person purchasing the insurance must have a financial stake in the insured object or person. This ensures that the policyholder will suffer a financial loss if the insured event occurs.
3. Indemnity:
- Insurance policies are designed to restore the insured to roughly the same financial position they were in before the loss occurred. It aims to make the insured "whole" again, but not to allow them to profit from a claim.
4. Subrogation:
- After compensating the insured for their loss, the insurer acquires the legal rights to pursue recovery from any third party responsible for the loss. This prevents the insured from recovering more than their actual loss and facilitates the insurer in recouping some or all of the payout.
5. Contribution:
- If the insured has multiple insurance policies covering the same risk, this principle ensures that each insurer pays their fair share of the claim. This prevents the insured from receiving more compensation than the loss incurred.
6. Proximate Cause:
- The cause of loss must be closely connected to the risk insured against. To determine whether a claim is valid, insurers look for the proximate cause or the most dominant cause that led to the loss.
Understanding these principles can help policyholders grasp how insurance like property, health, life, or auto insurance operates, ensuring they handle their policies effectively and submit claims correctly.
Comments
Post a Comment