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LIC ADO 2015 NOTES : Principles of Insurance

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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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