1. A Valid contact
Features Of valid contract should be included in the agreement.
02. Insurable Interest
It means the legal right to insure a property or a life. One can’t insure a thing which doesn’t belong to him. According to that, there may be an economic advantage when there is safe existence of a property of lives which are subjected to the insurance similarly, there must be an economic disadvantage when they are lost or damaged also a legal connection or ownership must exist for those assets some examples
• When insuring property, its legal owner has an insurable interest.
• Husband as well as wife has an insurable interest over each other.
• Creditor has an insurable interest over the debtor.
• A son/ daughter have an insurable interest in the life of their father who supports them.
Non person can came to an insurance agreement without an insurable interest over the property insured.
3. Utmost good faith
This principle emphasizes that the two parties connected and who agreed to the agreement of insurance, must disclose correctly all the related information.
When obtaining insurance, necessary information should be presented through the insurance proposal from accordingly, these information help to decide what the conditions are and how much the value of the conditions of insurance.
If the utmost good faith is breached by not disclosing important details from whatever party, there is a legal right to cancel the contract of insurance. Ex; – a person needs to disclose the true value of a motor vehicle. Therefore, the organization is also entitled to disclose the loss.
According to the principle, if the insured property is damaged, a sufficient compensation must be paid only up to level of marking it good. Claiming more money excess of the damaged as compensation is prevented.
The principle is not applied to life insurance, individual random insurance and health protection insurance. It can only be applied to property insurance. Due to this principle, no one can use insurance as a gambling game when claim is paid, the value of the damage would not exceed only the damage is indemnified thought the coverage.
When practicing this principle, two other principles are too practiced spontaneously
Risk must attach
There should be a risk that is covered by the insurance. Unless damage exists, no need to maintain an insurance policy.
According to this principle, no legal restriction to obtain more than one insurance policy over the same property. It means of property is able to obtain more than one insurance policy over a single property from different insurer company
If the owner of the property obtains more than one insurance policy over the same property, when damage is occurred, the insurer is not entitled to obtain claims from each company separately. The insured is entitled to obtain compensation on proportional basis based on the value of the insurance coverage.
Ex- k.jonsen & company has insured its vehicle in three different insurance companies for following values.
ABC insurance company =10,000usd
Akr insurance company = 8,000usd
Bdc insurance company = 12,000usd
The value of the vehicle is 16, 00000 on a certain day when the manager traveled on the vehicle, for official work, it met with an accident. The value of the damage was estimated at 900000 insurance claim can be obtained as follows.
Abc insurance company 900000×10,000=300000
Akr insurance company 900000×8,000=240000
Bdc insurance company 900000×12,000=360000
Though a person has obtained an insurance coverage or not, when a property is damaged by an external party, the owner has a legal right to get compensation from that external party.
Yet, according to the principle of indemnity, the insured is not entitled to claim from both the external party and from the insurer for the same property. The season is that, if he obtains compensation from both parties, he has chance to make profit out of insurance.
So that before obtaining the insurance claim from the external part, the insured transfers his claiming right to the insurer which is called subrogation.
In other words, due to an offence committed by an external party or due to the negligence of obligation by an external party, the affected party has a right for compensation. When the affected party has obtained an insurance company. So that to avoid obtaining compensation twice for the same property the insured should transfer his claiming right to the insurance company before gaining the insurance claim.
The insured should consider the reasons for the damage caused. If insurance cover has been obtained for such damages. Then only has the right to claim compensation from insurance. If the closest cause of the damage is covered under the insurance the insured has the right to claims compensation.
Ex; – if an organization has insured against fire accidents, the damages caused by a theft could not be claimed.
Term Of policy
There should be a term of policy for the insurance agreement. Within this period the insurer cover the risk of the insured and the insured pays the installments as agreed upon.
• Regarding the life insurance only the principles insurable interest, utmost good faith, proximate causes are relevant.
• Principles such as indemnity, subrogation and contribution are not material with regard to life insurance.