Almost all of us have insurance. What do we do when our insurer gives us the policy document? All we do is glance over the decorated words in the policy and pile it up with the other bunch of financial papers on our desk, right? If you spend thousands of Pula each year on insurance, don’t you think that you should know all about it? In this article, we’ll make understanding your insurance contract easy. Read on to take a look at a few basic ideals and terms of insurance contracts and how they are put to use in daily life.
• Utmost good faith
All types of contracts of insurance depend upon the contracts of utmost good faith. Both parties (insurer and insured) in the contract must disclose all material facts for the benefit of each other. False information or non-disclosure of any important fact makes the contract avoidable. So the conditions to show utmost good faith are very strict on the part of the insured.
• Insurable Interest
The insured must possess an insurable interest in the object insured. It may be defined as a financial interest in the subject matter of contract. When you insure your belonging, you should take it to be worth the money being spent on it. The presence of insurable interest is a legal requirement. So an insurance contract without the existence of insurable interest is not legally valid and cannot be claimed in Court. The object of this principle is to prevent insurance from becoming a gambling contract.
• Principle of indemnity
All types of contracts except life and personal accident insurance are contract of indemnity. According to them, the insurer undertakes to indemnify or compensate the insured against a loss of the subject matter of insurance due to insured cause. In life insurance the question of indemnification does exist. This is because the loss of life cannot be estimated in term of money. If no event happens, the insured does not receive any amount, and in such a case the premiums paid by him become the profit of the insurer.
• Doctrine of subrogation
This principle applies to the contract of indemnity only i.e. marine and fire. It lays down a principle which is quite equitable. According to this doctrine, when a loss occurs and the insurer pays as for a total loss, he is entitled to all the rights and remedies which the insured has against a third party in respect of loss so paid for. It prevents the insured being indemnified from two sources in respect of the same loss. Suppose ‘A’ has damaged ‘B’s motor car negligently. If ‘A’ pays ‘B’s loss in full. ‘B’ cannot collect the same from the insurance company. On other hand if ‘B’ applied to his insurance company for indemnity under policy, he will not be permitted to collect the damages from ‘A’. And the latter case the insurance company will be entitled to collect the amount.