Principles of Insurance
Principles of Insurance
Principles of Insurance
An insurance contract is a type of a legal contract in which a type of risk is transferred to an insurance company in return of a premium by the policyholder. As by their nature, insurance contracts may be exposed to misconduct by both parties: the underwriter and the policyholder. Therefore six principles of insurance, which are recognised by law, were created to reduce this type of abuse. In the following pages I will explain these principles and show by practical examples how these are related to property Insurance.
Insurable Interest
This is one of the fundamental principles of insurance. Without Insurable interest, insurance contracts can be compared to gambling. Insurable Interest is widely defined as a person who has an interest in the survival of the insured or in the preservation of the property that is insured. That is the policyholder will suffer a financial loss if the property is lost in a fortuitous event. Insurable interest is required by the policyholder from the application process till the expiry of the contract.
The key elements of insurable interest are: * Subject matter * Financial Interest * Current Interest * Legal Interest
Insurable Interest is important in property insurance as it will decrease deliberate acts. As a practical example imagine person A insures person’s B home for a premium of €500 with a sum insured of €50,000 by taking a fire policy. Person A does not have any interest in person’s B home (subject matter). Then person A deliberately sets a fire on person B’s home. Therefore the insurance company will fork out €50,000 to person A.
With insurable interest Person A cannot insure person B’s home as he does not have any interest in it, as he will not suffer any loss if this home is destroyed by any event.
The policyholder must suffer a financial loss if he has an insurable interest in the subject matter. From the case of Lucena vs
Principles of Insurance
An insurance contract is a type of a legal contract in which a type of risk is transferred to an insurance company in return of a premium by the policyholder. As by their nature, insurance contracts may be exposed to misconduct by both parties: the underwriter and the policyholder. Therefore six principles of insurance, which are recognised by law, were created to reduce this type of abuse. In the following pages I will explain these principles and show by practical examples how these are related to property Insurance.
Insurable Interest
This is one of the fundamental principles of insurance. Without Insurable interest, insurance contracts can be compared to gambling. Insurable Interest is widely defined as a person who has an interest in the survival of the insured or in the preservation of the property that is insured. That is the policyholder will suffer a financial loss if the property is lost in a fortuitous event. Insurable interest is required by the policyholder from the application process till the expiry of the contract.
The key elements of insurable interest are: * Subject matter * Financial Interest * Current Interest * Legal Interest
Insurable Interest is important in property insurance as it will decrease deliberate acts. As a practical example imagine person A insures person’s B home for a premium of €500 with a sum insured of €50,000 by taking a fire policy. Person A does not have any interest in person’s B home (subject matter). Then person A deliberately sets a fire on person B’s home. Therefore the insurance company will fork out €50,000 to person A.
With insurable interest Person A cannot insure person B’s home as he does not have any interest in it, as he will not suffer any loss if this home is destroyed by any event.
The policyholder must suffer a financial loss if he has an insurable interest in the subject matter. From the case of Lucena vs
Bibliography: The Chartered Insurance Institute. Chapter 6: Making the contract, pg9. (2004) The Chartered Insurance Institute TEG Industries Limited vs Gasan Insurance agency Limited. Case Law No. 155/99JRM (2009) The Chartered Insurance Institute The Chartered Insurance Institute. Chapter 10: Making the claim, pg13. (2004) The Chartered Insurance Institute [ 2 ]. 2004. The Chartered Insurance Institute. Chapter 7: Utmost good faith, pg14. [ 3 ]. 2009. TEG Industries Limited vs Gasan Insurance agency Limited. Case Law No. 155/99JRM [ 4 ] [ 5 ]. 2004. The Chartered Insurance Institute. Chapter 10: Making the claim, pg13. [ 6 ]. 2004. The Chartered Insurance Institute. Chapter 10: Making the claim, pg15.