Modern insurance principles

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  1. Principle ofUberrimaefidei (Utmost Good Faith) 
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The insurer must provide the insured complete, correct and clear information of subject matter. Just as the insurer must provide the insured complete, correct and clear information regarding terms and conditions of the contract.  

  1. The principle of Insurable Interest

The owner of the party is said to have insurable interest as long as they’re the owner of the policy. Ownership plays a crucial role in evaluating insurable interest. In life insurance refers to the life insured, whereas a merchant has an insurable interest in their business of trading. 

  1. Principle of Indemnity

It means a guarantee or assurance to put the insured in the same position in which they were immediately prior to the happening of the uncertain event. The insurer undertakes to make good the loss by agreeing to compensate the insured for the actual loss suffered. 

  1. Principle of Contribution

According to this principle, the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer. If one insurer pays full compensation than that insurer can claim proportionate claim from the other insurers. 

So, if the insured claims full amount of compensation from one insurer Then the insured cannot claim the same compensation from other insurer and make a profit. Secondly, if one insurance company pays the full compensation then it can recover the proportionate contribution from the other insurance company. 

  1. Principle of Subrogation

Subrogation means substituting one creditor for another. When the insured is compensated for the losses due to damage to their insured property, then the ownership right of such property shifts to the insurer. 

  1. The principle of Loss Minimisation

According to the Principle of Loss Minimisation, insured must always try their level best to minimise the loss of their insured property, in case of uncertain events like a fire outbreak or blast, etc. 

The insured must not neglect and behave irresponsibly during such events just because the property is insured. 

  1. The principle of CausaProxima(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 vice versa.

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