Overview:
Insurance is a complex subject, and understanding the basic principles behind it is essential for making informed decisions about your coverage. The 7 principles of insurance are as follows:
1.Utmost Good Faith:
This principle states that both the insurer and the insured have a duty to disclose all relevant information honestly and completely. The insurer must provide full disclosure of all terms and conditions of the policy, while the insured must disclose all relevant information about the risk being insured.
2.Insurable Interest:
In order to purchase an insurance policy, an individual must have an insurable interest in the subject matter being insured. This means that the individual must stand to suffer financially if the subject matter is damaged or destroyed.
3.Proximate Cause:
The principle of proximate cause states that the cause of a loss must be directly related to the insured risk. For example, if a house burns down as a result of a lightning strike, the proximate cause of the loss is the lightning strike, not a pre-existing condition of the house.
4.Indemnity:
This principle states that an insurance policy should put the insured back in the same financial position they were in before the loss occurred. The insurer will compensate the insured for the loss, but not for any profit that may have been made as a result of the loss.
5.Subrogation:
This principle allows the insurer to step into the shoes of the insured and take legal action against a third party who is liable for the loss. For example, if a person's car is damaged in a car accident caused by another driver, the insurer can take legal action against the other driver to recover the costs of the damage.
6.Contribution:
This principle states that if an individual has more than one insurance policy covering the same risk, the policies will share the loss in proportion to their respective policy limits.
7.Loss Minimization:
This principle encourages the insured to take steps to prevent losses from occurring, and to minimize the impact of any losses that do occur. This can include installing safety devices or taking steps to protect property from damage.
Conclusion:
In conclusion, these 7 principles of insurance are fundamental to the way insurance operates. It's essential to understand these principles to make informed decisions about your coverage and to ensure that you have the right type of insurance to meet your specific needs.
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insurance