Important Principles Of Insurance
Insurance is basically a form of risk assessment and protection coverage for individuals or entities seeking insurance protection from an insurance company. The tender for the protection provided by the insurer comes from the premium that the clients pay which varies based on the risks the insurer has with the certain client. Of course, the main motive as to why there is insurance in the first place is cooperation. Insurance is literally defined in many books as the equitable transfer of risk of loss from an entity to another for a premium. This premium of course is the overall amount or cost you pay the insurer for your insurance coverage policy.
Insurance is actually very complex as there are different regulations, rules, fundamentals, and principle involved under it. It is important to keep in mind that the policy that you have with your insurer is a binding contract that is active and applicable on the dates covered by the policy. The principles of insurance are not written in sand as they are made to convey legality and ethics. You do not actually need to be in the field of insurance work to know some of the very important ones.
- Nature of Contract:
The fundamentals of an insurance contract lie in the nature of the contract. The contract becomes an existing contract when one party proposes an offer or contract wherein the other party accepts the proposals made. A contract does not have to be complex as even a simple contract undersigned by both parties involved becomes a valid contract.
- Principal of Utmost Good Faith:
Under the contract, it is important that both parties involved have faith with each other. Clients should practice honesty and disclose necessary facts or information that is important for the insurer. Failure to do this results in misrepresentation or fraud and may result with the insurance contract’s termination.
- Principle of Insurable Interest:
Within this principle of insurance, it is vital that the insured has interest on the matter that is being insured. If the client does not have insurable interest over the matter, it is in the best interest of the insurance company to not issue any insurance policy. For the purchase of contract to be valid, the insurable interest should be existent during the purchase of the insurance policy.
- Principle of Indemnity:
This is the compensation for loss or damage. The principle of indemnity states that the insured will only be allocated appropriate amounts and will not be compensated in amounts that exceed the economic loss of the insured.