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Explain three important principles of Insurance. - Leaving Cert Business - Question B - 2002
Question B
Explain three important principles of Insurance.
Worked Solution & Example Answer:Explain three important principles of Insurance. - Leaving Cert Business - Question B - 2002
Step 1
Insurable Interest
Answer
The principle of insurable interest states that the insured must have a personal financial interest in the object being insured. This means that the policyholder should benefit from the continued existence of the property and suffer loss if it is damaged or destroyed. Without this interest, the contract may be deemed void.
Step 2
Utmost Good Faith
Answer
Utmost good faith, or 'uberrima fides', requires both parties in an insurance contract to act honestly and disclose all relevant facts. The insured must disclose any information that might affect the insurer's decision to accept the risk, ensuring transparency between the parties. Failure to provide this information could result in the contract being rendered void.
Step 3
The Principle of Indemnity
Answer
The principle of indemnity ensures that when a loss occurs, the insured is compensated only to the extent of their financial loss. This means that the insured cannot profit from the insurance claim but is returned to their financial position prior to the loss. It serves to prevent any unjust enrichment resulting from insurance compensation.