Basic Principles of Insurance
1. Insurance Interest: These principles state that one can easily insure properties which if damaged or lost will make one suffer personal loss. The principles state that one can only insure the properties that belong to him/her. So one cannot insure his friend’s car no matter how high your interest is on the car.
2. Indemnity: This principle refers to the compensation given to the owner of the property (insured) by the insurance company (insurer) in the event of his suffering a specified loss or damage.
3. Utmost good faith (uberimae fidel): This principle advocates that each of the parties must disclose all the material facts which might influence any party’s willingness to make the contract or reject it. The insured has the duty to disclose material facts and not make fraudulent claims.
4. Abandonment: This principle of insurance emphasizes the fact that if the cost of repairing the property damaged is higher than the actual value then it has to be abandoned. The goods insured may be abandoned in such cases as;
i. The actual loss appears to be unavoidable
ii. If the cost of repairs will be more than the value.
5. Subrogation: This principle states that the insurer has the right to step into the insurer’s shoe if the insurer has been paid the whole of the loss sustained. He is entitled to enforce the rights which would have been available to the insured against the third party.
6. Proximate Clause: The principle states that there must be a close connection between the loss actually suffered and the risk for which insurance has been taken out. The insurance company will not be liable if the risks other than those insured are involved. In the time of filling the proposal form, if the names of Agness and success are stated as some of those that will drive the car and the car was involved in an accident when Mr. Best was driving it, the insurance company will not pay because Mr. Best was not mentioned in the form.
7. Contribution: The principle of contribution provides that if an object is insured with more than one insurance company, the amount claimable from individual insurers will be limited to their individual rateable proportion of the loss. This clause makes it difficult for the insured to recover the full amount of his loss from each insurer.
8. Abandonment: The principle of abandonment provides that if an insured object is damaged beyond repairs, that is, if the cost of repairing it exceeds the real value of the object, the insurance company reserves the right to abandon the object and submit financial indemnities to the insured to the tune of his total loss.