Key Principles of Insurance Explained with Visuals
Principles of
Insurance
1. Utmost Good Faith
The person seeking insurance
must provide all relevant details and be
truthful.
e.g. driver must inform company if they have
penalty points as it
increases the degree of risk
2. Insurable Interest
•
The insured must benefit financially from the items existence and
suffer financially from its loss
My house
neighbours house
3. Indemnity
•
The insured cannot make a profit from insurance.
•
If underinsured, the average clause formula is used to calculate the
fraction of compensation they are entitled to.
Amount insured
x loss = compensation
Current market value
4. Contribution
•
If the person is insured by two or more insurance companies and
makes a claim, the compensation to be paid is split between them
5. Subrogation
•
Once the insurance company pays the claim they take the legal rights
and the insured cannot sue for damages
•
E.g. if the insured persons car is stolen and compensation is paid, if it
is found it then belongs to the insurance company
Understanding the principles of insurance is crucial for both insurance seekers and companies. The principles include Utmost Good Faith, Insurable Interest, Indemnity, Contribution, and Subrogation. These principles ensure transparency, fairness, and protection for policyholders. Visual representations aid in simplifying complex concepts related to insurance.
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Presentation Transcript
Principles of Insurance
1. Utmost Good Faith The person seeking insurance The person seeking insurance must provide all relevant details and be must provide all relevant details and be truthful. truthful. e.g. driver must inform company if they have e.g. driver must inform company if they have penalty points as it increases the degree of risk increases the degree of risk penalty points as it
2. Insurable Interest The insured must benefit financially from the items existence and suffer financially from its loss My house My house neighbours house neighbours house
3. Indemnity The insured cannot make a profit from insurance. If underinsured, the average clause formula is used to calculate the fraction of compensation they are entitled to. Amount insured x loss = compensation Current market value
4. Contribution If the person is insured by two or more insurance companies and makes a claim, the compensation to be paid is split between them
5. Subrogation Once the insurance company pays the claim they take the legal rights and the insured cannot sue for damages E.g. if the insured persons car is stolen and compensation is paid, if it is found it then belongs to the insurance company
