Insurance bears the cost of the unexpected type of risk among a large number of people in the same region. It is significant conditions and situation of the insurer before getting insured. As both the parties are relying on each other without any practical application. The insurer must investigate any doubtable insurance claims and accept and approve all claims of genuine insurance as soon as possible without delay and hindrance. There are 7 Basic Principles Of General Insurance applicable which make the bond of reliability stronger between the involved parties.
• The Principle of Uberrimaefidei (Utmost Good Faith)
Is a fundamental and first primary principle of Insurance. According to this principle, the insurance agreement is signed by both parties in absolute good faith, belief or trust. The person applying for the insurance should indeed disclose and surrender to the insurer all the subject matter regarding Insurance. The insurer’s liability gets void if any fact found false, hidden, omitted or present in the wrong manner by the insured. The principle of Uberrimaefidei applies to all types of insurance contracts.
• The Principle of Insurable Interest
States that the person getting insurance should have subject matter in the interest of the insured. The person has the insurable interest when the existence of the subject matter gives him some gain, and it’s non- existence will provide him with a loss. That means the insured person will have a financial loss in case of damage of insured object. Example, the factory owner, has an insurable interest in its machinery as they are making him monetary profit and if he sells it, the owner of the factory does not have any insurance left. We conclude that ownership plays a very crucial role in insurable interest.
• The Principle of Indemnity
Means security, compensation or protection given against any loss, damage or injury of the insured object. According to this principle, the contract of insurance is only be signed to protect the object against any damage or loss due to future uncertainties. In the contract signed the amount of compensation paid should be in absolute proportion to the actual cost of the object. The compensation should not be less or more of the actual damage.
• The Principle of Contribution
This principle is a corollary to the principles of indemnity. It applies to the principles of indemnity if the insured person has taken more than one policy on the same subject matter. In this case, insurer can claim only the extent of actual loss from one insurer on any number of the insurer. If one insurer compensates full loss than that insurer can claim the proportionate amount from other insurer or insurers.
• The Principle of Subrogation
This principle is an extent of indemnity or corollary of the principles of indemnity. If the insured person compensated the loss or damage of property or object than the right of ownership is shifted to the insurer. This principle has its importance if the damaged property has some value after the event of damage. The insurer can benefit out of subrogation only to the extent of compensation paid to the insured person.
• The Principle of Loss Minimization
According to this principle, the insured should try its level best to minimize the loss in case of an event such as fire or flood occur. Hence it is the responsibility of the insured to protect its property and avoid further losses.
• The Principle of Causa Proxima (Nearest Cause)
Means if the damage has occurred by multiple causes than the closest and the nearest cause of damage should be taken into consideration. The Principles of General Insurance states that whether the insured is liable for the compensation of the losses or not. The proximate (nearest) cause of the loss should be considered and not the remote (fairest) must be looked into. For example. , and the sea water entered the ship, here the cause of the damage is both the rats and the sea water. The ship has insurance of sea water and not the rats, but the insurer will have to pay the compensation of the sea water which should be taken into account.
Finally, the conclusion is that the insured party should genuinely present its subject matter and no facts should be hidden or omitted for the covering of the risk from future uncertainties for to avoid delays in compensation approvals.