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Business Services-1 — OCM STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceOCMBusiness Services-15 Marks
Question
Explain in brief the basic principles of insurance Contract
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Answer

  • Introduction :
  • When two competent parties give the free consent as written promise to performs or not to perform any assignment against financial consideration is called contract. From this view point insurance too is a contract. Indian contract Act is applicable to every contract. Insurance contract is a special type of contract. It is required for both the parties to obey the basic principles of insurance contract. Insurance contract due to breach of this principle.
  • Basic principles of insurance Contract : they are as under :
  • $(1)$ principles of utmost Good faith $(2)$ principle of Indemnity $(3)$ principle of Insurable interest $(4)$ principle of subrogation
  • Principle of Utmost Good faith :
  • Basic concept of insurance is social.
  • Both the parties of in surance contract should trust each other.
  • Principle of Utmost Good faith means at the time of contract both the parties should mutually give full and complete details regarding everything related to the contract.
  • Even if some detail is ot asked for and is affect the contract one should disclose it to the other party during signing the contract.
  • When the hidden detail are disclosed later on then it is a found no detail should be kept hidden detail is called breach of the principle of Utmost Good Faith and insurance contract gets cancelled.
  • In these circumstances of economic does not get back the amount of premium paid and can not receive the compensation of economic loss.
  • Principle of Indemnity :
  • The basic objective of insurance contract is to pay compensation to the insured against loss.
  • How much compensation to be paid is determined by this principle , Insurance bears properties is not take to make profit.
  • Compensation is not paid more than loss.
  • In the insurance of an individual or a thing is taken of les than it actual amount , then he/she bears proportions loss.
  • Its calculations is as below.
  • If the insurance taken of the asset is of $D 6$ lakh and the worth of asset is $D 10$ lacs and entire asset is destroyed then insure gets $D 6$ lacs as compensation .
  • If the value of asset is $D 10$ lacs , insurance taken is of $ DD 6$ lacs and damage to the asset is $D 4$ lacs then proportionate amount compensation of insurance amount $D 2,40,000$ will be paid.
  • If the value of property is $D 10$ lacs and insurance taken is of $D 10$ lacs and damage to the property is $D 10$ lacs then entire amount $D 10$ lacs will be paid by insurance company .
  • principle of Indemnity :
        • the basic objective of insurance contract is to pay compensation to the insured against loss.
        • How much compensation to be paid is determined by this principle , Insurance bears properties is not take to make profit. Compensation is not paid more than loss.
        • If the insurance taken of the asset is of $D 6$ lakh and the worth of asset is $D 10$ lacs and entire asset is destroyed then insure gets $D 6$ lacs as compensation .
        • If the value of asset is $D 10$ lacs , insurance taken is of $DD 6$ lacs and damage to the asset is $D 4$ lacs then proportionate amount compensation of insurance amount $D 2,40,000$ will be paid.
        • If the value of property is $D 10$ lacs and insurance taken is of $D 10$ lacs and damage to the property is $D 10$ lacs then entire amount $D 10$ lacs will be paid by insurance company .
  • Principle of Insurance Interest :
        • The insure takes insurance of certain asset and he/ she is economically beneficiary by its existence and suffer economic loss from its destruction.
        • Regarding this thing the interest of insure is insurable interest e.g. when the house of neighbor is damaged, we really feel sorry but do not bear any economic loss.
        • Our insurance does not exist in property and insurance is taken then it gets cancelled.
  • Principle of Subrogation :
        • Under this principle when insurance company has paid compensation to the insure.
        • For the thing damaged and of which insurance is taken.
        • Then after the ownership of that thing belong to the insurance company, insurance company can sell that damaged thing and obtain money e.g. when a vehicle is damaged and insurance company pays compensation for the damaged part, then after ownership of these replaced parts is of the insurance company. Insurance company sells it.
        • In scrap market and gets money , This principle is not applied to life Insurance . When a peron dies, insurance company pays the amount of insurance to the heirs of the deceased but the dead body is given to its heirs for funeral and final ceremony, It does not belong o insurance company.
  • Conclusion :
    • Insurance Should be taken to keep in mind that the principles of insurance capacity to pay premium also should be taken care of.
    • If regular premium is not paid then insurance company may cease its responsibility.

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