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Insurance principles

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Principles of Insurance.
The Principle of Utmost Good Faith
Both parties involved in an insurance contractthe insured (policy
holder) and the insurer (the company)should act in good faith
towards each other.
The insurer and the insured must provide clear and concise
information regarding the terms and conditions of the contract
This is a very basic and primary principle of insurance contracts because
the nature of the service is for the insurance company to provide a
certain level of security and solidarity to the insured person’s life.
However, the insurance company must also watch out for anyone
looking for a way to scam them into free money. So each party is
expected to act in good faith towards each other.
If the insurance company provides you with falsified or misrepresented
information, then they are liable in situations where this
misrepresentation or falsification has caused you loss. If you have
misrepresented information regarding subject matter or your own
personal history, then the insurance company’s liability becomes void
(revoked).
The Principle of Insurable Interest
Insurable interest just means that the subject matter of the contract must
provide some financial gain by existing for the insured (or policyholder)
and would lead to a financial loss if damaged, destroyed, stolen, or lost.
The insured must have an insurable interest in the subject matter of
the insurance contract.
The owner of the subject is said to have an insurable interest until
s/he is no longer the owner.
In auto insurance, this will most times be a no brainer, but it does lead to
issues when the person driving a vehicle doesn’t own it. For instance, if
you are hit by a person who isn’t on the insurance policy of the vehicle,
do you file a claim with the owner’s insurance company or the driver’s

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insurance company? This is a simple but crucial element for an insurance
contract to exist.
The Principle of Indemnity
Indemnity is a guarantee to restore the insured to the position he or
she was in before the uncertain incident that caused a loss for the
insured. The insurer (provider) compensates the insured
(policyholder).
The insurance company promises to compensate the policyholder
for the amount of the loss up to the amount agreed upon in the
contract.
Essentially, this is the part of the contract that matters the most for the
insurance policyholder because this is the part of the contract that says
she or he has the right to be compensated or, in other words,
indemnified for his or her loss.
The amount of compensation is in direct proportion with the incurred
loss. The insurance company will pay up to the amount of the incurred
loss or the insured amount agreed on in the contract, whichever is less.
For instance, if your car is inured for $10,000 but damages are only
$3,000. You get $3,000 not the full amount.
Compensation is not paid when the incident that caused the loss doesn’t
happen during the time allotted in the contract or from the specific
agreed upon causes of loss (as you will see in The Principle of Proximate
Cause). Insurance contracts are created solely as a means to provide
protection from unexpected events, not as a means to make a profit
from a loss. Therefore, the insured is protected from losses by the
principle of indemnity, but through stipulations that keep him or her
from being able to scam and make a profit.
The Principle of Contribution
Contribution establishes a corollary among all the insurance
contracts involved in an incident or with the same subject.

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Principles of Insurance. The Principle of Utmost Good Faith • • Both parties involved in an insurance contract—the insured (policy holder) and the insurer (the company)—should act in good faith towards each other. The insurer and the insured must provide clear and concise information regarding the terms and conditions of the contract This is a very basic and primary principle of insurance contracts because the nature of the service is for the insurance company to provide a certain level of security and solidarity to the insured person’s life. However, the insurance company must also watch out for anyone looking for a way to scam them into free money. So each party is expected to act in good faith towards each other. If the insurance company provides you with falsified or misrepresented information, then they are liable in situations where this misrepresentation or falsification has caused you loss. If you have misrepresented information regarding subject matter or your own personal history, then the insurance company’s liability becomes void (revoked). The Principle of Insurable Interest Insurable interest just means that the subject matter of the contract must provide some financial gain by existing for the insured (or policyholder) and would lead to a financial loss if damaged, destroyed, stolen, or lost. • • The insured must have an insurable interest in the subject matter of the insurance contract. The owner of the subject is said to have an insurabl ...
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