Everyone faces some degree of risk in various aspects of their life. It may be through death, or destruction or even loss of property. There is therefore a need to take measures to reduce the impact of such losses through transferring such risks to another party who offers to compensate when such incidents happen.
The insured then has to pay premiums in order to keep their cover active. Failing to contribute such amounts may lead to an insured not being compensated. There are many generally accepted principles of insurance that insurance companies strictly enforce. The adherence with these principles determine whether an insured person is to be compensated or not.
When applying for the cover, it is mandatory to disclose all material information truthfully to the best of your knowledge. This is called the principle of ultimate good faith or full disclosure. Information obtained in such instances is used to estimate the level of risk that an applicant is exposed to thus setting of amount of premiums. This is one of the most important principles of insurance since without this, the insurance contract would be null and void.
All successful applicants must also pay premiums regularly as stipulated in the policy document. Paying such payments in time ensures that issues related with denial of compensation are avoided. Since this is the price for cover, it must be paid prior to acquiring a cover. This means that those who do not pay are not covered.
When insured risks happen, the policy holder is entitled to compensation of up to an amount equal to the value of the cover. Therefore, people are not entitled to gain from such arrangements. When a cover relates to property that is replaced by the insurer, any wreckage or scrap is transforms to be owned by the insurer.
Anyone who has insurable interest to any property is the only one entitled to take a cover for its risks. This means that the person whose name appears in the title documents must sign for the cover to be valid. Failing to follow this rule leads to automatic denial of compensation when an insured risk happens.
The cover is only active up to a certain period of time. Property insurance may last for one year or less after which the cover has to be renewed for the policy holder to remain covered. Premiums are therefore active up to the date specified on the cover certificate.
Life cover is however not governed by the principle of sabrogation since human life cannot be valued in monetary terms. The assured person takes a cover which promises to pay the beneficiaries a certain amount of money upon demise of the policy holder. In business insurance, life cover may be undertaken to ensure beneficiaries of employees are compensated in case of death of their loved on.
The risk against which the loss is insured must happen so as to warrant any compensation. This is called the principle of proximal cause. For instance, when a cover has been taken against fire, the insured can only be compensated when any loss sustained is closely related to fire or is actually a fire. Therefore occurrence of any other loss causing event does not warrant compensation.