Principles of Insurance: Key Concepts

 

Rule of Insurance: Major concepts 

 Insurance is a financial management which guards against monetary loss or hazard. It functions on the idea of danger contribution, whereby persons or companies shift their risks to an insurance individual in return for premiums. To maintain fairness and performance, insurance is governed by some fundamental principles. It is highly essential to understand these principles for both the insurance companies and the policyholders. The main principles of insurance that follow are:  

1. The doctrine of extremely good faith (Ebrie Fadi)

This doctrine commands both insurance and insurance to deal in good faith and reveal every material fact. The insurance shall be required to give complete and true information on the insurance risk, and the insurance shall need to explain policy terms and conditions. Non-disclosure of applicable information may attract cancellation of a policy or the rejection of a claim.

2. The interest of insurance

 One can insure only something, if he owns a financial interest or a legal interest. Hence, the insured object or subject will have to bear financial loss on the policyholder if such object or person gets damaged or lost. An example would be that an individual can insure his house but can’t insure the house of the neighboring person.  

3. The principle of compensation

 The insurance is to put the insured in the same financial position in which he was already loss-making so that he can earn without profit. The principle places the claim of the claimant on the actual loss and not on discretion.  

4. The principle of contribution

If an individual owns many insurance policies for the same risk, the insurance proportionally distributes the claims amount. This avoids insurance from being excessive in recovering from the actual loss by claiming to multiple insurers. 

5. The principle of Subrogation

After paying the insurers in respect of any loss, the insurance can bring about a loss of damage from a third party. This insurance does not allow individuals to exploit the same damage twice. 

6. The principle of estimated cause

 If a loss is brought about by multiple reasons, the insurance will check for the closest or immediate cause to see if the damage falls under this policy. If the primary reason is the insured peril, the claim is within entitlement. Otherwise, this may be denied.  

7. The doctrine of mitigating the loss

   The insurers have to act reasonably to limit the losses. That is, even after purchasing insurance, they have to work in a responsible manner to prevent or limit the damage. For instance, during a fire outbreak, insurance will have to attempt to rescue him or call an ambulance.

 

Conclusion  

Knowledge of these principles enables people and companies to make sound decisions regarding insurance coverages. These principles promote justice, forestall fraud and uphold the honesty of the insurance sector. By applying them, both the insurance and policyholders can reap a stable and efficient insurance system.