Insurance companies take risks whenever they write a policy to clients, especially ones that are intent on committing fraud. Like it or not, insurance companies are businesses and their business is to provide insurance to those who are looking to get insurance. However, it is crucial that there is equity on both sides to make the deal fair. This makes it proper that the client divulge everything that is needed for the insurer to deem if the insurance policy they are giving is fair on their side. As safeguard from getting swindled by fraudulent schemes, insurance companies have built the six Principles of Insurance to protect their side of the business.
- Utmost Good Faith –it is understood that the client should disclose all important and relevant matters of the items being insured. Failure to reveal important details may be deemed as intent to commit fraud. Take for instance life insurance. Insurers will usually not insure someone with hypertension or require a higher sum to insure them. Failure to disclose this detail means that when it comes to making claims over the demise of the insured person means that the insurer will not release the agreed upon claims due to failure to disclose the medical condition.
- Insurable Interest – the insurer will not insure or provide claims on something you find no value for. It is understood that when you insure something, it means that something is of relevant importance to you. Insuring something that is of no relevant interest to you may be regarded as an intention to commit fraud.
- Indemnity –your insurer will only compensate for the amount of expenses needed to remedy the damage or amount needed to replace it. Once claims have been provided, the insurer will indemnify that the insured item is now in its pre-damaged condition.
- Proximate Cause – there are different coverage available on each insurance type. In the event that what has been insured gets damaged or lost but is not properly covered for the reason it has gotten lost or damaged, the insurer is not liable to pay claims as the said loss or damage is not within the coverage of the policy.
- Subrogation – if a third party were to cause damage, the insurer will pay claims but will sue the third party to cover their losses. Normally, the insurer will require double the amount of paid claims as compensation.
- Contribution – as a protection, you cannot be insured with two insurers for the same policy. Should the event come wherein you need to make claims, only one insurer will pay your claims and the amount will be shared by both insurers.