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Principles of Insurance

Insurance is a system where people pay premiums to protect themselves from financial losses. It is based on pooling risks together, so the fortunate can help the unfortunate. There are four main principles of insurance: insurable interest, utmost good faith, indemnity, and subrogation. Insurable interest means one can only insure something they have a financial stake in. Utmost good faith requires honesty between the insurer and insured. Indemnity aims to restore the insured to their pre-loss position. Subrogation means the insurer will only pay for losses caused by covered risks.

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488 views1 page

Principles of Insurance

Insurance is a system where people pay premiums to protect themselves from financial losses. It is based on pooling risks together, so the fortunate can help the unfortunate. There are four main principles of insurance: insurable interest, utmost good faith, indemnity, and subrogation. Insurable interest means one can only insure something they have a financial stake in. Utmost good faith requires honesty between the insurer and insured. Indemnity aims to restore the insured to their pre-loss position. Subrogation means the insurer will only pay for losses caused by covered risks.

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aluyandro
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© © All Rights Reserved
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Insurance

Insurance is a system of protection against all kinds of risk. People buy insurance policies to protect
themselves against the loss of something which is very valuable to them, such as a car, a house, a
farm and a factory.

Insurance is based on the principle of pooling risks. In insurance, business is dependent upon the
fortunate helping the unfortunate.

Four Main Principles Of Insurance


Insurance is based on the following Main principles: Insurable Interest, Utmost Good Faith,
Indemnity and Subrogation.

1. Insurable Interest
One is not allowed to insure another person’s property because he or she will not suffer a financial
loss should the property insured get damaged. He or she might also be tempted to cause damage to
the property knowing that he or she is not a beneficiary in any way.

2. Utmost good faith


The principle of utmost good faith is concerned with maximum honesty from both parties the insurer
(the Insurance Company) and the insured (person taking out insurance). should the insurance
company discover that some information was withheld or given falsely, the contract (insurance
policy) will be declared null and void or the insurer will simply not pay compensation.

3. Indemnity
The insurer (company) believes in restoring the insured to the position he was in before suffering a
financial loss. The insured asking for compensation must neither profit nor make a loss. If, for
example, the insured car is damaged in a road traffic accident, the insured (person making the claim)
will receive money as compensation and surrender the damaged car (wreck) to the insurance
company.

4. Subrogation
The insurance company will only pay if the compensation of the loss suffered was caused by the risk
that was covered by the policy and that the cause is within the terms of insurance. For example, if
you set your house on fire, the insurance company will not pay compensation because the fire that
destroyed the house was not accidental.

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