Principles of Insurance with example

Principles of Insurance with example

User needs to understand the principles of insurance and it will help user to understand the concept of insurance. The principles of insurance with example help to understand it easily. It will help students and policy holder for better understanding.

  • Principles of Insurance (Read 10 min)

Here is given Principles of insurance. we will cover basic principles of insurance with example after the list.

  • Loss Minimization
  • Utmost Good Faith
  • Indemnity
  • Insurable Interest
  • Proximate Cause
  • Subrogation
  • Contribution
principles of insurance

Basic  principles of insurance

The examples are given after each principle. Insurancegrams is happy to help.

The Principle of Loss Minimization

Example: Mr John has insurance for his car. He should not drive his car in influence of alcohol. He should make his best to avoid the accident. In every situation, he should try to protect his car against any loss and damage. He should not behave like careless with insured car.

The Principle of Utmost Good Faith

Example: Mr john has a habit of smoking. During health insurance premium check, he observes that for non-smoker the insurance premium is low. Mr. John has acted with sensitivity and reveal truth about his habit. Also, he has to disclose his past illness records.

In the situation of process of claim, the past illness is not described and the health report reveals the past illness. the claim is denied by health insurance company.

The Principle of Insurable Interest

Example: Mr. John took Term insurance with a higher amount with a good thought that it will help his family in need full time. After the death of Mr. John, insurance company investigates the actual financial loss caused by Mr. John’s death is far less. Then insurance company can only process the actual financial loss amount to his family member.

The Principle of Indemnity

Example: Mr. John took insurance for his car. After some time his car is lost during robbery at his home. The insurance company paid the amount to Mr. John. But in case the car is found, Mr john has given option to deposit money and got car Or else he will lose ownership of car.

The Principle of Contribution

Example: Mr John’s Car is year old and now valued at half of its price. Mr. John took car insurance and his car is damaged in an accident. The car insurance company will only process a claim of half amount as insurance is taken against half price. If the bill amount is greater than the insured amount, the remaining amount will be paid by Mr. John.

The Principle of Subrogation

Example: Mr. John took heath insurance of $10000. First-year he admitted to hospital two times.
During the first time, his medical expenses were $9000. The Health Insurance company will pay the amount. But in the second health emergency, his bill is $2000, then only $1000 is compensated by the company.

The Principle of Proximate Cause

Example: Mr john took an accidental death policy. During a car accident, his death has happened. The contract said that the compensation amount should be paid by the insurance company. But during Investigation, the company found out that Mr. John was in influence of alcohol. In this situation, His claim is denied by the insurance company.

Hope this article makes you understand the principles of Insurance with examples.