General Information
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Definition of insurance: Insurance is a
means of distributing losses that may happen to the individual on a
group of individuals by establishing a fund which contributes to the
individuals exposed to the
same risks for use in compensation from the experience of
loss that may
happen to anyone of them. In simple words, It is a mechanism
of transferring the risk from the insured to
the insurer.
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Benefits of insurance:
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- Ease the burden on society and government
- Provide comfort and reassurance to the Insured
- Supports bank loans and investment
- Release capital for other purposes
- Risk distribution
- Create Jobs
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Principles of insurance:
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Indemnity
- Insurable interest
- Utmost good faith
- Subrogation
- Contribution
- Proximate cause
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Indemnity principle: It is to put the insured after the loss in the same financial position
he was before the loss occurs. The assessed compensation will not
exceed the real loss suffered by the insured.
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Insurable Interest principle: It is the legal right to require insurance. It states that there should
be financial and legal relationship between the individual and the
subject of insurance.
Ex: Life insurance of the husband and the beneficiary is his
wife.
Life insurance between two partners.
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Utmost Good Faith Principle:It states that each party of the contract must give all material facts
related to the threat to be secured, to the other party, whether asked
or not asked about. Material Fact is any fact affecting the decision of the insurer to
accept or reject insurance and in appreciation of the premium and the
contract terms.
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Subrogation:It is right of the insurer to replace the insured in the third-party
claim for the compensation of the loss caused by the insured after
paying to the insured. There is no subrogation in life and accidents policies since they aren’t
indemnity policies.The goal from subrogation isprevent the insured to benefit from the loss
and unjust enrichment at the expense of the insured.
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Contribution: It is the right of the insurer to claim other insurers to participate
with him in the costs of compensation, but not necessarily equally Contribution applies in indemnity policies such as Motor policies,
medical policies, property all risk policies, and fire policies. It doesn’t apply on life and personal accident policies. Contribution is in the interest of insurers, where the insured does not
get more than what they deserve.
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Contribution is applicable where:
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- There are two indemnity policies or more.
- All of these policies are for the same insured.
- Cause of loss is covered under all of these policies.
- All of these policies are responsible of the loss.
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Proximate cause: It is the direct and effective cause that moves a series of events in a
sequential and natural eventually lead to the loss without the
intervention of any other factor arising from a separate new thread interrupt that chain.
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Difference between insurance agent and insurance broker
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Agents
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- Usually, they work part time
- They aren’t considered an experts in the affairs of insurance
- Can not be prosecuted because of negligence
- Represent the insurance company
- Given limited powers to compel the insurer
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Brokers
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- They work all the usual working hours
- Considered an expert in the affairs of insurance
- Can be prosecuted because of negligence
- Represent the insured
- Given more power such as issuing insurance notices and policies
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