LIC ADO 2015 NOTES : Principles of Insurance

Principles of Insurance

1. Utmost Good Faith
2. Insurable Interest
3. Principle of Indemnity
4. Principle of Contribution
5. Principle of Subrogation
6. Principle of loss Minimization
7. Principle of ‘CAUSA PROXIMA’

Utmost Good Faith

• Both the parties i.e. insured and the insurer
  should a good faith towards each other.
• The insurer must provide the insured
  complete, correct and clear information of
  subject matter.
• The insurer must provide the insured
  complete, correct and clear information
  regarding terms and conditions of the contract.
• This principle is applicable to all contracts of
  insurance i.e. life, fire and marine insurance.

Insurable Interest

• The insured must have insurable interest in the
  subject matter of insurance.
  In life insurance it refers to the life insured.
•  In marine insurance it is enough if the insurable interest exits only at the time of occurrence of the loss.
• In fire and general insurance it must be present at the time of taking policy and also at the time of the occurrence of loss.
• The owner of the party is said to have insurable interest as long as he is the owner of it.
• It is applicable to all contracts of insurance.

Principle of Indemnity

•  Indemnityh means a guarantee or assurance to
  put the insured in t he same position in which
  he was immediately prior to the happening of
  the uncertain event. The insurer undertakes to
  make good loss.
•  It is applicable to fire, marine and other
  general insurance.
•  Under this the insurer agrees to compensate
  the insured for the actual loss suffered.

Principle of Contribution

•  The principle is a corollary of the principle of indemnity.
• It is applicable to all contracts of indemnity.
• Under this principle the insured can claim the compensation only to the extent of actual loss either from any one insurer or all the insurers.

Principle of Subrogation

• As per this principle after the insured is
  compensated for the loss due to damage to
  property insured, then the right of ownership
  of such property passes on to the insurer.
• This principle is corollary of the principle of
  indemnity and is applicable to all contracts of
  indemnity.

Principle of loss Minimization

•  Under this principle it is the duty of the
  insured to take all possible steps to minimize
  the loss to the insured property on the
  happening of uncertain event.

Principle of ‘CAUSA PROXIMA’

• The loss of insurerd property can be caused by
  more than one cause in succession to another.
• The property may be insured against some
  causes and not against all causes.
• In such an instance, the proximate cause or
  nearest cause of loss is to be found out.
•  If the proximate cause is the one which is
  insured against the insurance company is
  bound to pay the compensation and vice versa.

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