Whenever an insurer writes a policy for a client, they risk themselves of entering a contract that is disadvantageous for them. After all, only the client is fully knowledgeable over the real value of the property or item they are trying to insure. Without full disclosure of relevant details, the insurer will not be able to properly evaluate the value of what is being insured. Such risks are a definite disadvantage for insurance companies, which is why they have come up with six principles of insurance to help safeguard their best interest.
Principle of Utmost Good Faith – proper evaluation is necessary prior to the writing of a policy. It is your responsibility to disclose and divulge anything that may be necessary for the insurer to know. Proper disclosure of essential information is necessary to properly appraise the value of what is being insured.
Principle of Insurable Interest – an insurer will not write you a policy if the item or property you are insuring serves no value or interest to you at all. Clients are more likely to commit fraud when they insure something that is of no interest to them. Only those with insurable interest will be insured by the insurer.
Principle of Indemnity – the insurer will only compensate the cost of the damage or loss made unto the insured item. The insurer will not release more funds on claims than what is really needed. Additionally, the amount of claim has a peak limit determined under the policy.
Principle of Proximate Cause – claims will only be made based on the coverage of the insurance policy. Damages or losses that are as a result of a different cause notwithstanding the specified insurance coverage will not be covered. Claims made herein will be denied/refused unless the cause of damage is as a result or within the limits of the coverage.
Principle of Subrogation – if damage is caused by a third party, the insurer will provide the necessary claims. However, to compensate the insurer’s loss over your claim, they will sue the third party that caused the damage wherein their asking payout will be double of the claims they had paid.
Principle of Contribution – if a client is insured with more than one insurer, the coverage of the cost the will be paid out to the client on claims will be shared by the insurers. Even if you have paid for premiums with both insurer, under this policy, you will not be allowed to collect from both insurers.