Insurance entails risk management wherein the risk of uncertain loss by policyholders is lowered through insurance. People who want to insure something does this because they want to decrease the overall risk they have should a loss become inevitable. The thing is that it is not just the policyholders who are faced with risk involvement as insurers also faces risk when an individual or entity does not fully disclose important details of the things they are insuring. To avoid facing such risk and major loss in finances, insurance institutions have come up with the Principles of Insurance to combat their exposure to serious risks.
All-in-all, there are six Principles of Insurance that insurance companies adhere to:
Principle of Utmost Good Faith – this entails having complete trust and honest faith from both parties. Dishonesty and non-disclosure of important information is considered as premeditated misrepresentation of information with the intention to commit fraud. Any attempt to do such will result in the cancelation or termination of the insurance policy.
Principle of Insurable Interest – the insurer sees no point in insuring something that the client does not hold any value for. Being of no value to them only means they will not have any remorse over its loss. The insurer will refuse to insure something that proves to be of no value to the client.
Principle of Indemnity – the claims that will be provided to the insured will only equal to the value or cost of the repair or replacement. The insurer will never pay for more than the total cost of what had been lost.
Principle of Proximate Cause – damage or losses that arise from other eventualities other than that of the insurance coverage will not be compensated by the insurer. This is the reason why different coverage exists.
Principle of Subrogation – the insurer will compensate damages incurred by third parties. However, they reserve the right to sue the third party to get compensated for the expenses they have made. Usually, they will double or triple the amount compensated to them as a means of settling the hassle the third party has given them.
Principle of Contribution – you can buy similar insurance from different insurance companies. However, if a time comes where you need to collect claims, you will not be allowed to take claims from both insurers, even if you have paid both your premiums in full. The claims given to you will be shared by the two insurers you have insurance policies with.