Insurance

Insurance

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What is insurance?

Insurance is defined simply as an agreement between and insurance company (insurer) and someone who wants financial protection (the insured) for events that may happen

It is different from assurance which deals with events that must happen.

Principles of insurance

• Pooling of Risks- Each payment of a relatively small premium is “pooled” to indemnify the contributor who suffers a loss

  
  

• Subrogation- Subrogate means “to take the place of”, this is a situation where the money paid as compensation against a claim takes the place of the article damaged.

  
  

• Proximate Cause- An insurance policy may very well pay for losses incurred under a policy that may not be directly related to the policy itself for example if a house is flooded and there is damage done by rescuers for breaking down the windows the policy may very well cover the cost even though it was not flood related

  
  

Principles of Insurance

• Indemnity- This principle allows for the policy holder to be compensated for losses incurred, reasons for this; to prevent profiteering.

• Utmost good faith- Parties to insurance have legal obligations to be truthful in the declaration they make  

  
  

• Contribution- This is where a policy holder may have overlapping in their policy whereby two insurance companies are responsible for payment for a loss, in a case like this both companies will split the compensation according to the policy

  
  

Principles of Insurance

• Insurable Interests- An individual cannot insure something that is not financially directly related to them. Unlike life assurance where a husband and wife can insure the life of each other 

  
  

• Uninsurable Risks – Insurance companies only insure events in which they can statistically calculate the probability of that event occurring which is actually the grounds from which premiums for policy holders are calculated.