The five fundamental principles of insurance are:
- Principle of Utmost Good Faith (Uberrima Fides):
Both the insurer and the insured must disclose all material facts honestly and completely to build trust and avoid misrepresentation. - Principle of Insurable Interest:
The insured must have a financial or other legitimate interest in the subject matter of the insurance, ensuring they suffer a loss if the insured event occurs. - Principle of Indemnity:
Insurance aims to restore the insured to the financial position they were in before the loss, without profit or gain from the insurance claim. - Principle of Contribution:
If the insured has multiple policies covering the same risk, they cannot claim more than the actual loss and must contribute proportionately across all policies. - Principle of Subrogation:
After compensating the insured, the insurer gains the legal rights to recover the amount of loss from third parties responsible for the damage.
Certainly! Here’s an explanation of the five principles of insurance in simple terms:
- Utmost Good Faith:
Both you (the insured) and the insurance company must be completely honest with each other. For example, when buying a health insurance policy, you must share all information about your medical history accurately, and the insurer must clearly explain the terms of the policy. - Insurable Interest:
You can only insure something if you would suffer a loss if it were damaged or lost. For example, you can insure your house because if it is damaged, you face financial loss. But you cannot insure your neighbor’s house since you don’t have a personal stake in it. - Indemnity:
Insurance is meant to cover your loss, not let you profit. For example, if your car is damaged in an accident and it costs $5,000 to repair, the insurance company will pay $5,000—not more. - Contribution:
If you have more than one insurance policy covering the same thing, all the insurers will share the cost of the claim. For example, if you have two health policies, both will contribute to your hospital bills proportionately instead of one paying the full amount. - Subrogation:
After paying your claim, the insurer can take legal action on your behalf to recover the money from a third party responsible for the loss. For example, if someone crashes into your car, your insurer can pay for your repairs and then sue the other driver to recover the costs.
These principles ensure fairness and transparency in insurance agreements.
