General Principles - Insurance Policies

Insurance is a means of protection from financial loss. It is a form of risk management primarily used to fence against the risk of unforeseen, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or insurance carrier. A person or entity who buys insurance is known as an insured or policyholder.

Let’s Assume Mr. Harinath wants a Life insurance policy. He contacts an insurance company, say LIC India for his insurance. So here Mr. Harinath is the insured and LIC India is the Insurer., Mr. Harinath is bound by the insurance contract to pay a certain sum of money in a regular interval (say once in 3 months) to LIC India. In return, LIC India provides financial cover to Mr. Harinath. That is, in case of loss of the object of insurance (Mr. Harinath, in this case, dies), LIC India will pay a predetermined sum to Mr. Harinath’s wife or children. This is the general concept of Insurance.

The main objective of every insurance contract is to give financial security and protection to the insured from any future uncertainties. Insurer must never ever try to misuse this safe financial cover.

However, seeking profit opportunities by reporting false occurrences violates the terms and conditions of an insurance contract. This breaks trust, results in breaching of a contract and invites legal penalties.

An insurer must always investigate any doubtful insurance claims. It is also a duty of the insurer to accept and approve all genuine insurance claims made, as early as possible without any further delays and annoying hindrances.

The seven principles of insurance are :-

1. Principle of Uberrimae fidei (Utmost Good Faith),
2. Principle of Insurable Interest,
3. Principle of Indemnity,
4. Principle of Contribution,
5. Principle of Subrogation,
6. Principle of Loss Minimization, and
7. Principle of Causa Proxima (Nearest Cause).

We will talk in detail about these principles in the next article

Chiranjibi Chapagain
Find me on twitter