Risks are always out there; the moment you wake up, there are unforeseen circumstances that can always cause human injuries and loss of property. Fortunately, insurance comes in to help us manage risks and maintain our assets in times of accidents. While most of us have insurance one way or another—health, life, auto, etc.—most of us do not even have a fair understanding of what insurance is or how it works. To know more about it, here are the seven basic principles that govern all types of insurance.
Insurable interest exists when a person benefits financially or in any other way from a certain form of asset. For a certain entity to become an insurable interest, it muse meet the following criteria:
• There must be an object, right, property, interest, or life that can be insured
• There has to be a direct and established relation between the insurable interest and the person filing for an insurance policy
• The person filing for insurance must benefit from the insurable interest or suffer loss from the damage or loss of the insurable interest
Insurance companies only issue policies to applicants who have insurable interest. Therefore, any person applying for an insurance policy must present legal proof that he is the owner and benefits directly from the said interest.
Utmost Good Faith
Also known as Uberrima fides, this doctrine stipulates that both parties must be honest and faithful in providing critical information to each other and not withhold any information related to the transaction from one another. This requires the insurer to disclose the terms included in the policy as well as the applicant to provide all the information required by the former.
Under this principle, the insurance provider will look at the set of events that caused the loss to determine whether a covered cause is actually the real reason behind a policyholder’s claim. The proximate cause is the strongest, most active, and most efficient cause that generated the loss—and the cause must be under the covered causes in the policy so the policyholder can file for a claim. To determine the proximate cause, insurance companies generally use the “but for” argument, stating that “but for the cause, the result would not have happened.”
An indemnity is the compensation for damages or loss. In an insurance contract, the insurer agrees to pay the insured for the damages and loss caused by covered causes, in return for premiums regularly paid by the latter to the former.
A contribution is an insurance principle that states that in an event of damage or loss, two or more insurance providers covering the same entity participate in providing indemnity to the insured. Under this principle, either the insured can claim full compensation from one insurance provider or partial compensation from all providers depending on the premiums paid. If the insured person claims full compensation from one provider, the said insurance provider can go to the other insurers to divide the compensation paid to the insured. However, the insured cannot claim full compensation from several insurance providers for profit.
A right reserved by most insurance providers, subrogation is the right of an insurer to pursue a third-party liable for the loss of a policyholder for the losses incurred to the insured entity. Most especially when the third party is solely at fault for the damage or loss, the insurance firm can pursue legal action towards the third party at fault to recover the amount paid by the insurer to the insured.
Under the said principle, the insured must always do his best to reduce the risks of any form of damage or loss. In case of uncertain events happening, it is the responsibility of the insured to control the losses as much as he can. As part of his responsibility to both the insured interest and the insurance provider, the insurer must protect his assets at all times.