All You Need To Know About The Principles Of Insurance In Commerce
PRINCIPLE OF INSURANCE – As explained earlier, the basic principle behind insurance is the establishment of a pool of funds from which the unfortunate can be compensated, In order to make certain that insurance is not abused for speculative purposes, the certain legal principle has been established.
1. Insurable interest – means that the insured must stand to lose financially if the event insured against happens and that he must be in a legally recognized relationship to whatever is insured. For example, if I were allowed to insure a stranger’s car I would suffer no hardship if it were destroyed, but I would gain financially. This might tempt me to commit a criminal act in order to bring about the event and therefore it is not allowed. Another’s property or life can only be insured if you stand to lose something from its loss yourself.
2. Indemnity – refers to compensation, the aim is to try to place the insured in the same financial situation immediately after the event as he was in before it. Indemnity does not refer to insurance policies regarding the death or injury of people since it is impossible to place a financial value on these. The idea of indemnity is supported by the principles of contribution and subrogation.
Contribution relates to an incident where the insured could claim compensation from more than one policy. In such a case the insurance companies involved would decide on the size of the loss and share the payment between them. Subrogation states that once the insurer has indemnified the insured, he has a right to take over any other legal rights to compensation that the insured may have. This again means that the insured cannot be doubly compensated.
3. Utmost good faith – (uberrima fides) states that if the information given to the insurer was inaccurate, then the policy may be invalidated and the claim refused.