Some of Insurance Term Crucial To Understand

Principle of Indemnity

The purpose of insurance is not for the insured to make a profit but only to mitigate his losses when an insured event occurs. This is the main ground the principle of indemnity is based on.

Basically, the principle of indemnity asserts that an insured may not be paid an amount in excess of the loss incurred by him in the event the insured peril occurs. Indemnification henceforth is the restoration of an insured person to his or her approximate ,financial position prior to the occurrence of the loss.

The three supportive principles that are applied in the enforcement of the indemnity principle in insurance are discussed below


Insurable Interest

The legal right to insure a subject matter is basic to insurance and this is the basis the principle of insurable interest is formed. The principle states that an individual with insurable interest on the subject of insurance must stand to lose financially or suffer harm in some ways if the subject of insurance is damaged or destroyed or lost. Example, you have an insurable interest in your house since you stand to lose financially if it is burnt down or damaged in any way


Subrogation

This is another insurance principle that strongly upholds the indemnity principle. The subrogation principle is a process whereby the insurer is substituted for the insured for the purpose of claiming indemnity from a third person for a loss covered by insurance. This effectively means that the insurer is entitled to claim from a negligent third party any loss payments made to the insured on the case.


Double Insurance

To prevent incidence of the insured claiming from multiple policies issued on the same risk, there is a provision included in the policy to prevent the insured from claiming more than the quantum at risk. Commonly, there is a clause that provides for the sharing of the loss among insurers when the insured risk occurs, which is based on some pre-determined formulas.