Explain FIVE principles of insurance – NABTEB QUESTION

Principles of insurance:

 

(i) Utmost good faith: This term means that all relevant information that may affect the contract of insurance must be truthfully disclosed by the insured and insurer.

OR

Failure on both parties to disclose any relevant material facts renders the contract void.

 

(ii) Indemnity: This means restoring the insured to his former position before the occurrence of the event insured against.

OR

It is a protection against loss, as well as prevents the insured from making a profit as a result of the event insured against.

 

(iii) Insurable interest: This refers to the disadvantage or financial loss that a person will suffer when the event insured against happens

OR

It is a condition of insurance that one must have interest (measurable in money terms) in a particular article or property to be insured.

 

(iv) Contribution: Where a person has a particular risk covered by more than one insurance company, the person will not be able to claim fully from each of the companies.

OR

Each would pay only a proportion of the loss and so, the insured does not make gain from the contract of insurance in keeping with the principle of indemnity.

 

(v) Proximate cause: This term implies that a proof is required that the direct and immediate cause of the loss suffered was by the occurrence of the risk insured against.

OR

Only losses arising from the direct and immediate cause of the event insured against are indemnified

 

(vi) Subrogation: This term refers to the right which the company has to stand in the place of the insured and avail itself to certain legal rights and remedies, which the insured has against a third party who is liable for the occurrence of a loss

OR

To prelude the insured from being indemnified from two sources in respect of the same loss, i.e. claim from the policy of insurance for the loss, as well as retain damages recovered from the third party who causes the occurrence of the loss.