Insurance policies are certain documents that recover people by protecting them from huge financial loss due to any kind of accident situations of life. There may be many kinds to insurances like life insurance, health insurance, automobile insurance, property or liability insurance, etc. Insurance policies are formed by following some particular principles. These principles are applied in all the cases of insurance laws, and the violation of these may be a cause for termination or penalization. Here are the seven most important principles of insurance laws.
1. Principle of Insurable Interest
Insurance not only takes money to assure the policyholders for future assistance but also assures that the sum of money paid for a long time will get increased by crediting a particular amount of interest. This means the ultimate amount of money will get increased, and people will gain. This principle is called the principle of insurable interest. Insurable interest is mentioned in the terms and conditions section of the contract.
2. Principle of Indemnity
It is a factor to provide all the respective assurances and everything to the policyholder or the nominee which are promised by the insurance providers during the time of loss, deaths or damage. The principle of indemnity is the core part of the insurance.
3. Utmost Good Faith
Insurance is held between two parties- the policyholder or the insured and the company or the insurer. Both are required to hold good faith between the two. The company is liable to clarify all the respective terms and conditions to the insured wherever they make queries.
4. Principle of proximate cause
While a policyholder is signing for a contract to get assured for insurance, he is also mentioning the fact for a proximate cause towards which the insurance is to be insured. Insurance companies will pay him for one proximate cause and not for all the causes.
5. Principle of Subrogation
Subrogation is transferring one property to another person during the time of loss or damage or death. While a policyholder is asking for the insurance, the company is liable to transfer the amount of one person’s insurance to the immediate one. This is because everybody will not ask for insurance at the same time. But if two or more persons are asking for their insurance, the company will, however, manage to pay them at the respective time only. In other words, a process of subrogation is taking place all the time.
6. Principle of contribution
The respective contribution of the amount means this principle as the name suggests due to any proximate cause as a matter of indemnity. The contract always mentions the principle of contribution clearly by assuring for a particular amount of interest.
7. Principle of Loss Minimization
This is among the most simple principle of insurance law. Loss minimization means the insured person needs to claim all the required amount from the company by checking that the minimum amount of loss is incurred.