principles of insurance

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Transcript of principles of insurance

  • 1. RISK ANDINSURANCEPRINCIPLES OF INSURANCE

2. INSURABLE INTEREST (i.i) One major differencebetween insuranceand gambling is thethe former has to besupported byinsurable interest. 3. Subject Matter of Insurance - Contract Subject matter of insurance is the life,limbs, property, rights or any potentiallegal liability insured under a policy. Subject matter of contract is the insuredsfinancial interest in the subject matter ofinsurance. 4. What is i.i The right to insure arising out of legallyrecognized financial interest which aperson has in the subject matter ofinsurance. Which is the financial interest that isrecognized under the common law orstatute. 5. When i.i must exist? At the time of inception and at the time ofloss. EXCEPT: Life insurance at the time of inception Marine at the time of loss 6. ASSIGNMENT The transfer of rights and liabilities by one person to another. An assignee, the person who takes over the assignment rights will have no better rights that those enjoyed by the assignor. 7. Exception of the Rule Marine Policies Freely assignable by statutory provision. Onlycargo policies are freely assignable. Life Policies Freely assignable by statutory provision 8. Assignment of Policy Proceeds Arises when an insured instructs hisinsurer to pay the policy proceeds to a thirdparty. The insurer remains a party to theinsurance contract and continue to assumeliabilities under it. All policy proceeds are freely assignableunder the policy unless the contractprovides otherwise. 9. UTMOST GOOD FAITH (UGF) Subject to duty ofgood faith in relationto disclosure duringnegotiation. The buyer should askquestions if the needmore information(caveat emptor letthe buyer beware) 10. Duty of UGF andContractual duty of UGF Positive duty (of the insured) to disclosed fullyand accurately all material facts that he (theinsured) knows or ought to know, whether askedfor or not by the insurer. The proposal form commonly contain adeclaration to the effect that the particulars givenin the proposal is true and correct. By signing the form, the proposer warrants thetruth of this statement. 11. Material Fact A fact which would influence thePRUDENT underwriter in accepting therisk or fixing the premium. 12. Duration Lasts until the completion of the insurancecontract. If any changes in teh material facts occurafter they have been intimated to theinsurer but before the completion of thecontract, the proposer is required to notifythe changes to the insurer otherwise thecontract would be voidable. 13. Breaches of UGF Breaches of UGF is committed the contract isvoidable. Breaches of UGF if:- Fails to provide the insurer with informationrelating to the material fact, consider as non-disclosure or- Misrepresent a material fact, i.eincorrect information relating to amaterial fact, termed asmisrepresentation. 14. PROXIMATE CAUSE When a loss hasoccurred the onus ison the insured toprove that the loss inrespect of which aclaim is made wascaused by theoperation of aninsured peril. 15. Definition The active, efficient cause that sets inmotion a train of events which bringsabout a result, without the intervention ofany force started and working from a newand independent source. 16. INDEMNITY To make good a lossor damage. When the insured hasmeasurable insurableinterest the contract ofinsurance will be acontract of indemnity. 17. Methods and Measures 1C 3R Measure Cash Total Loss Method 1 Reinstatement / Repair Replacement deduct wear and Replacetear Reinstate Method 2 Market Value of a property similar to the one destroyed Partial Loss Cost of repair 18. Factors Limiting Indemnity Sum Insured Average Condition Policy Excess Franchise 19. Policies Which Pay More ThanIndemnity Reinstatement Policies Agreed Additional Costs Valued Policies 20. SUBROGATION Taking the rights belongingto an insured by the insurerafter the latter hasindemnified the insured. Rights including thoserights against third partieswho are also liable for theloss which is the subject ofthe claim and the right ofthe insured in the salvage. 21. Subrogation rights may arise Subrogation arising from tort Subrogation arising out of contract Subrogation arising out of a statute Subrogation arising out of salvage 22. CONTRIBUTION The amount whicheach insurer has tocontribute to the costof a loss when the lossis covered by two ormore insurers 23. Principle of contribution andreason for necessary Principle of indemnity an insurer who hasindemnified the insures may call upon the otherinsurers who are similarly liable for the loss tocontribute to the payment of indemnity. If the insured is allowed to recover from morethan one insurer for the same loss, he mayrecover more than the loss, because there is noenrichment out of insurance claim. 24. Conditions 2 or more policies of The policies mustindemnity exists. cover a common The policies must subject matter.cover a common Each policy must beinterest. liable for the loss. The policies mustcover a common perilwhich gives rise to theloss.