UNIT III SERVICE BUSINESS - I Insurance is a means of providing monetary coverage against loss caused by natural or man-made factors commerce - - . . PM . Utmost Good Faith According to this principle, both insurer and insured should enter into contract in good faith.
Insured should provide all the information that impacts the subject matter. Insurer should provide all the details regarding insurance contract. Both the insurer and the insured should display good faith towards each other in regard to the contract. Example: Mr.
M is a heart patient. But he hides this fact to the LIC while taking a life policy. On his death due to a heart attack, LIC can refuse to pay compensation to his legal representative because a material fact was not disclosed by the insured. .
Insurable Interest The insured must have an insurable interest in the subject matter of insurance. 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 they will suffer financially on the happening of the event against which they are insured. Example, a businessman has insurable interest in his stock of goods.
. Indemnity Indemnity means security or compensation against loss or damages. In insurance, the insured would be compensated with the amount equivalent to the actual loss and not the amount exceeding the loss. This principle ensures that the insured does not make any profit out of the insurance.
This principle of indemnity is applicable to property insurance alone. Example: A businessman gets his sock of goods insured for ₹ , , . If the goods are destroyed by the fire, the insurance company will be liable to pay compensation for the loss caused to the insured. However, maximum compensation shall be ₹ , , even if loss is more than this.
“The principle of indemnity is not applicable to life insurance because one cannot estimate the loss due to the death of a person” . Causa Proxima The word ‘Causa proxima’ means ‘nearest cause’. According to this