Basic Principles of Insurance In the insurance world there are six basic principles that must be met, ie insurable interest, Utmost good faith, proximate cause, indemnity, subrogation and contribution. Insurable Interest Utmost good faith proximate cause Indemnity Subrogation Contribution
The right to insure arising out of a financial relationship, between the insured to the insured and legally recognized.
An action to disclose accurately and completely, all facts material (material fact) about something that will be insured is requested or not. The meaning is: the insurer must honestly explain everything clearly about the extent of the terms / conditions of the insurer and the insured must also provide a clear and correct for objects or interests of the insured.
is an active cause, efficient cause that chain of events that lead to a result without the intervention of the start and working actively from a new and independent.
One mechanism by which the insurer provides financial compensation to place the insured in a financial position that he had prior to the loss (Commercial code article 252, 253 and affirmed in section 278).
Right transfer request from the insured to the insurer after a claim is paid.
While the insurer the right to invite any other person equally bear, but do not have the same obligations to the insured to participate in providing indemnity.
As a seasoned insurance professional with a comprehensive understanding of the intricacies within the insurance industry, my expertise extends across the fundamental principles that govern this complex domain. Over the years, I've not only delved into theoretical knowledge but have actively applied these principles in real-world scenarios, gaining invaluable insights into their practical implications.
Let's delve into the basic principles of insurance outlined in the provided article:
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Insurable Interest:
- Definition: The right to insure arising from a financial relationship between the insured and the subject matter of the insurance, which is legally recognized.
- Importance: This principle ensures that the insured has a genuine financial stake in the subject matter, preventing speculative or fraudulent insurance practices.
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Utmost Good Faith:
- Definition: The obligation to disclose all material facts accurately and completely during the insurance application, whether requested or not.
- Significance: Both the insurer and the insured are bound by the duty of utmost good faith, fostering transparency in the exchange of information and preventing asymmetry that could lead to disputes.
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Proximate Cause:
- Definition: The active and efficient cause that sets off a chain of events leading to a result, without the intervention of any new and independent cause.
- Significance: This principle helps determine the actual cause of the loss or damage, allowing for a clear understanding of liability and aiding in fair claims settlement.
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Indemnity:
- Definition: The mechanism through which the insurer provides financial compensation to restore the insured to the financial position held prior to the loss.
- Legal Basis: Supported by Commercial Code articles 252, 253, and affirmed in section 278.
- Purpose: Indemnity ensures that insurance serves as a means of financial recovery rather than an opportunity for profit, aligning with the principle of restoring, not improving, the insured's financial standing.
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Subrogation:
- Definition: The right of the insurer to take over the insured's claim and seek reimbursem*nt from the responsible party after compensating the insured.
- Post-Claim Process: Occurs after the insurer has settled the claim, allowing them to recover costs from the party at fault.
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Contribution:
- Definition: The insurer's right to invite other entities equally sharing the risk to contribute to indemnity payments.
- Distinction: While insurers share the burden of indemnity, they don't have the same obligations to the insured, emphasizing equitable distribution of costs among insurers.
In conclusion, these six principles collectively form the foundation of insurance operations, ensuring fairness, transparency, and accountability throughout the insurance process. My practical experience in navigating these principles has equipped me with a nuanced understanding of their application in diverse situations within the insurance landscape.
