It is a common observation that insurance policies are incorrectly sold. While there are things that the regulator is fixing on the distribution side, it will help if all of us keep these principles in mind when we seek our insurance cover.
Indemnity: Insurance is to indemnify you against the losses. This means that insurance is not to be used for making a profit. So we should look at insurance as a risk management tool, estimate potential losses, as like loss of income to family in case of death and obtain a protection against the same.
Contribution. This is applicable when you have multiple insurance policy, say for health cover. This principle implies that you cannot claim from the multiple insurers against the same loss. This is in line with the Principle of Indemnity i.e. Insurance reimburses you only for the loss. The principle also allows the Insurance company which honours the claim to recover the loss proportionate from other insurers.
Good Faith (Uberrimae Fidei): Insurance is a contract between two parties i.e. Insurer and Insured. Insurer is dependent on Insured to know all the material facts about the Insured person’s present situation. So as an example, if you are taking a health policy, you must disclose all information to the insurer.
Subrogation: This means that the insurance company has the right to take actions against the parties that may be the reason for you to make the insurance claim. As an example, if you meet with an accident due to a third party mistake and need hospitalization, the insurance company may take actions against the third party concerned.
Loss Minimization: This principle implies that insured must try to minimize the loss even though the insurance cover exists. So as an example, if your property is insured for a structural protection, you should still try and minimize the loss out of say a fire breakout.
Causa Proxima: This means the nearest cause of the loss. When there are multiple reasons that caused the loss, the nearest cause, and not the remote cause, must be looked into to decide the liability of the insurer. This principle is helpful when there are multiple reasons that caused the loss and not all of the causes may have been insured.
Note: This article was written for Dainik Bhaskar and published on 17-Jan-2014