Principles of Insurance

Principles of Insurance

Insurance must uphold a number of principles including:

1. Insurable Interest
2. Utmost Good Faith
3. Indemnity
4. Contribution
5. Subrogation

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6. Insurable Interest: Insurable interest is a fundamental principle of insurance which mandates that the policyholder must have a vested interest in the subject matter of the insurance policy. This means that the policyholder would suffer a financial loss if the insured event occurs.

• Example: A homeowner insures their house because they would face financial loss if it were damaged or destroyed.

7. Utmost Good Faith: Utmost good faith requires both the insurer and the insured to disclose all material facts honestly and completely. Any misrepresentation or concealment of facts can render the insurance contract void.

• Example: When applying for health insurance, the applicant must accurately disclose their medical history and any pre-existing conditions.

8. Indemnity: The principle of indemnity ensures that the insured is restored to their financial position prior to the loss, without making a profit from the insurance claim. The compensation is based on the actual extent of the loss.

• Example: For example, if a car worth €10,000 is damaged in an accident, the insurer will pay the repair costs up to the car's market value but not more than €10,000.

9. Contribution: Contribution allows insurers who are liable for the same loss to share the claim payout proportionately. This principle prevents the insured from recovering more than the total loss.

• Example: If a property is insured by two different companies for €50,000 each and a loss of €30,000 occurs, each insurer will pay €15,000.

10. Subrogation: Subrogation gives the insurer the right to pursue a third party responsible for the insured's loss after compensating the insured. This allows the insurer to recover the amount paid in the claim from the party that caused the damage.

• Example: If an insured vehicle is damaged by another driver, the insurer may pay the claim to the policyholder and then seek reimbursement from the at-fault driver's insurance company.