Insurance

Principles

For every insurance company, there are different principles so for the sake of everyone.

Axis Capital, with a group of insurance and reinsurance companies from its main branch in Bermuda to its branch in Australia, United States of America, Australia and Singapore has listed the

most fundamental principle in the insurance world.

From the insurer's viewpoint, writing you a policy may be as big a risk as the risk you're insuring against. You know more about your health or the value of your house than the insurer, which could make it easy to cheat them.

Here are the insurance principles to review:

Utmost Good Faith

In any insurance company, we trust in our client’s word. In many business deals, the rule is "let the buyer beware." Insurance operates by the principle of "utmost good faith" instead.

When you take out a policy, you have an obligation to be truthful with your agent about the value of what you're insuring and the risks of losing or damaging it. The agent has no obligation to tell you any restrictions or rules that might reduce the value of your coverage so you don’t have to file a complaint against it in the end.

Insurable InterestYou can't insure something unless you have a vested interest in it. For example, you can insure your house, but you can't take out a policy on a stranger's home if the damage doesn't cause you a financial loss.

Legally, taking out insurance on something you don't own is closer to gambling than insurance -- you're making a bet on something happening to the house.

Indemnity

The insurer's job is to pay you enough to compensate for your loss -- but no more. If your house suffers $5,000 of damage, the insurer will indemnify you up to that amount so that you're in exactly the same position as you were pre-damage.

This principle has several exceptions: for example, when you die, life-insurance coverage isn't limited to the immediate financial loss this causes your spouse.

Proximate Cause

Insurance protects against some perils -- types of damage -- but not others. If your home is caught in a hurricane, for instance, your homeowners insurance protects against wind damage but not flooding:

If the proximate or primary cause of damage was floodwater, your insurer will refuse to pay. If you prove the proximate cause of the damage was the wind, you can collect.

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