and the insured should display good faith towards each other in regard to the contract. It is the duty of the insured to voluntarily make full, accurate disclosure of all facts, material to the risk being proposed and the insurer to make clear all the terms and conditions in the insurance contract. Thus, it is binding on the proposer to disclose all material facts about the subject matter of the proposed insurance. Any fact, which is likely to affect the mind of a prudent insurer in deciding to accept the proposal of insurance or in fixing the rate of premium is material for this purpose.
Failure to make disclosure of material facts by the insured makes the contract of insurance voidable at the discretion of the insurer. Examples of facts to be disclosed Fire insurance: Construction of building, fire detection and fire fighting equipment; nature of its use. Motor insurance: Type of vehicle; driver details. Personal Accident insurance: Age, height, weight, occupation, previous medical history.
Life insurance: Age, previous medical history, smoking/drinking habits. (ii) Insurable Interest: The insured must have an insurable interest in the subject matter of insurance. One fundamental fact of this principle is that ‘it is not the house, ship, machinery, potential liability of life that is insured, but it is the pecuniary interest of the insured in them, which is insured.’ Insurable interest means some pecuniary interest in the subject matter of the insurance contract. The insured must have an interest in the preservation of the thing or life insured, so that he/she will suffer financially on the happening of the event against which he/she is insured.
In case of insurance of property, insurable interest of the insured in the subject matter of the insurance must exist at the time of happening of the event. In order to name insurable interest however, it is not necessary that one should be the owner of the property. For example, a trustee holding property on behalf of others has an insurable interest in the property. (iii) Indemnity: All insurance contracts of fire or marine insurance are contracts of