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The general principles applicable to an insurance contract are as follows:
1. Principle of Utmost Good Faith
2. Principle of Indemnity
3. Principle of Insurable Interest
4. Principle of Contribution
5. Principle of Proximate Cause
3. Principle of Insurable Interest
4. Principle of Contribution
5. Principle of Proximate Cause
6. Principles of Subrogation
7. Principle of Loss Minimization
Principle of Utmost Good Faith
According to the principle of Utmost Good Faith, the insured (policy holder) has to disclose all the material facts and information to the insurer (the insurance company) which affects their ability to purchase an insurance policy. The insurer (the insurance company) also has to disclose all the terms and conditions along with the policy specifications to the insured (policy holder) to make a free and fair insurance contract.
7. Principle of Loss Minimization
Principle of Utmost Good Faith
According to the principle of Utmost Good Faith, the insured (policy holder) has to disclose all the material facts and information to the insurer (the insurance company) which affects their ability to purchase an insurance policy. The insurer (the insurance company) also has to disclose all the terms and conditions along with the policy specifications to the insured (policy holder) to make a free and fair insurance contract.
If the insurer finds a material fact not to be disclosed within 3 years, your policy may be null, as the insurer has the right to ask all the questions related to the issuance of the insurance policy that have an effect on the policy. After three years, the insurer is obligated to pay the claim even if an undisclosed material fact is discovered.
Principle of Indemnity
According to this principle, "insurance is for the purpose of transferring risk up to a certain limit, not to earn profit through insurance," the insurer will only cover the loss that has occurred. The purpose of this principle is to put the insured in the same financial position as they were before the loss. This principle is not applicable to life insurance.
According to this principle, "insurance is for the purpose of transferring risk up to a certain limit, not to earn profit through insurance," the insurer will only cover the loss that has occurred. The purpose of this principle is to put the insured in the same financial position as they were before the loss. This principle is not applicable to life insurance.
Principle of Insurable Interest
You must have an insurable interest in the life that is insured, which means you will suffer financial loss if the insured dies. There must be two conditions to have an insurable interest:
1. Legal Relationship
2. Direct financial losses
Examples are spouses, self, debtors and creditors, business partners, key men insurance, employers and employees, and so on.
Insurable interest is only applicable to life insurance at the time of purchase, but it must be applicable at both the time of purchase and the time of claim, in general, or non-life insurance.
You must have an insurable interest in the life that is insured, which means you will suffer financial loss if the insured dies. There must be two conditions to have an insurable interest:
1. Legal Relationship
2. Direct financial losses
Examples are spouses, self, debtors and creditors, business partners, key men insurance, employers and employees, and so on.
Insurable interest is only applicable to life insurance at the time of purchase, but it must be applicable at both the time of purchase and the time of claim, in general, or non-life insurance.
Principle of Contribution
The principle of contribution states that if you take insurance from more than one insurer, in that case both companies will share the claim amount in the event of a loss based on the proportion of their sum insured.
If one insurer paid the full claim amount, the other insurer has the right to approach them for their proportionate claim.
Example: Company A company buys fire insurance from two insurance companies, X and Y, for $1 million on machinery. Due to unforeseen circumstances, a loss occurred in the machinery due to fire, and the estimated loss report is $0.5 million. In that case, insurance company X is obligated to pay $0.1 million, and insurance company Y is obligated to pay $0.4 million as a claim amount.
Principle of Proximate Cause
This principle is applicable while calculating the claim for the loss; the proximate cause is the main reason due to which the insured suffered the financial loss, and that should be considered when processing the claim. Sometimes, due to a proximate cause which is not covered under your insurance policy, the insurer may reject your claim. This principle is only applicable in the case of general or non-life insurance.
The principle of contribution states that if you take insurance from more than one insurer, in that case both companies will share the claim amount in the event of a loss based on the proportion of their sum insured.
If one insurer paid the full claim amount, the other insurer has the right to approach them for their proportionate claim.
Example: Company A company buys fire insurance from two insurance companies, X and Y, for $1 million on machinery. Due to unforeseen circumstances, a loss occurred in the machinery due to fire, and the estimated loss report is $0.5 million. In that case, insurance company X is obligated to pay $0.1 million, and insurance company Y is obligated to pay $0.4 million as a claim amount.
Principle of Proximate Cause
This principle is applicable while calculating the claim for the loss; the proximate cause is the main reason due to which the insured suffered the financial loss, and that should be considered when processing the claim. Sometimes, due to a proximate cause which is not covered under your insurance policy, the insurer may reject your claim. This principle is only applicable in the case of general or non-life insurance.
Principle of Subrogation
When the loss is happened due to someone else or a third party, this principle comes into play. In such a case, the insurance company would pay the claim to the insured and file a claim or law suit to recover that amount from the third party who caused the loss and recover their claim amount, which was paid to the insured, as well as the cost of obtaining that money.
When the loss is happened due to someone else or a third party, this principle comes into play. In such a case, the insurance company would pay the claim to the insured and file a claim or law suit to recover that amount from the third party who caused the loss and recover their claim amount, which was paid to the insured, as well as the cost of obtaining that money.
Principle of Loss Minimization
This principle states that you have to take all the necessary action and precautionary steps to minimize your losses, even after purchasing the insurance policy. The claim inspection team will check all the precautionary steps taken by the insured to minimize their loss. This principle protects the insurer from both unwanted and precautionary losses.
This principle states that you have to take all the necessary action and precautionary steps to minimize your losses, even after purchasing the insurance policy. The claim inspection team will check all the precautionary steps taken by the insured to minimize their loss. This principle protects the insurer from both unwanted and precautionary losses.
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