In today’s world of uncertainty, safeguarding your family’s financial security is necessary. Just like you buy insurance to protect your house, buying life insurance can serve as a great help in aiding future requirements. Thus, it is important to know what is life insurance and the structure and principles on which it works. Learning about theprinciples of life insurance is as essential as understanding its benefits.
What is Life Insurance?
Life insurance is a contract that is established between a person (insured) and the Insurance Company or the government (insurer). It is represented in the form of a policy in which the company compensates a sum of money to the insured person in case of any harm to their insured property. Both the parties establish a legal agreement, where the insurance company will have to provide financial assistance to the person during unstable times. In return, the insured pays a certain amount of money or premium to the organization.
Similarly, a life insurance policy is an arrangement that ensures that the insured person’s family gets financial help after his/her demise. Life insurance can also be called a financial product that your family receives after a set period of time. The amount of premium and the time period is decided in the legal agreement formed between the two parties. Basically, life insurance is guaranteed financial stability granted to the person whose name is mentioned in the contract.
Principles of life insurance
Life insurance is a give- and- take process. It is based on a basic principle of trust and security between the insured and the insurer. The parties involved are interdependent, and the contract between them functions on some core principles. Its main motive is cooperation. Also, the principles of life insurance are based on such that it meets the market conditions. It also makes sure that the company can make a profit, and the insured individuals get secured policies.
Following are the principles of life insurance on which the policies are stipulated:
1. Principle of Good Faith
2. Principle of Insurable Interest
3. Principle of Indemnity
4. Principle of Subrogation
5. Principle of Proximate Cause
6. Principle of Contribution
7. Principle of Loss Minimization
8. Nature of the Contract
Understanding these principles of life insurance is vital. Let us know more about them.
Principle of Good Faith
As we discussed above, a life insurance policy is a two-way contract. Hence, there must be good faith established between the insurer and the insured person. It is of utmost importance that the policyholder provides the relevant details with honesty to the insurance company. The client is bound to disclose all the facts properly. Concealing the information may result in complications and serious consequences. In the same way, the company must also be faithful to clients and clearly state all the clauses and aspects of the policy to its clients.
Principle of Insurable Interest
This principle specifies that the policyholder must have an interest in the subject matter. For example: If you want to purchase a housing policy, you must have an interest in that; you must be living in it. In the case of life insurance, it could be a relationship, family bond etc. The absence of insurable interest will make the contract invalid. Also, the insurable interest must prevail at the time of buying the insurance policy and at the time of the accident.
Principle of Indemnity
Although this principle does not apply to the life insurance policy, it ensures that the insured gets the compensation that is equivalent to the actual loss. The amount will not exceed the loss so that the insured does not make additional profits from the company. In simple words, the policyholder will be provided with an amount equal to the loss and not more.
Principle of Subrogation
This principle is one of the most important, keeping in mind the unpredictability of life. Subrogation means that the insured is enabled to claim compensation from any third party that is responsible for the loss. The insured is thus allowed to go for legal methods to recover the loss. It also gives the insurance company the right to ownership from the insured to claim an amount from the third party.
Principle of Proximate Cause
This principle is concerned with the discovery of the dominant effective cause or the nearest cause that produced the loss being claimed for under the insurance. It means that in case of damage, the direct cause is considered. Hence, this principle is only applicable when the loss has occurred as a result of two or more causes. The principle does apply to every other materialistic policy, but comparatively, it has rather less significance with life insurance.
Principle of contribution
This principle can be implied if there more than one insurer involved. So, the insured cannot make any profits from different policies.
Principle of Loss Minimization
Purchasing life insurance means entering into a legal contract between the company and the insured person. Therefore, it is important to keep in mind that there should be minimal loss and risk involved. In such clauses, the owner of the policy is expected to take the necessary steps to limit him/her from any damage. This may include steps to follow a healthy lifestyle, not indulging in life-threatening habits like smoking etc.
Nature of the contract
Lastly, the nature of the contract is a fundamental determiner of cooperation between the client and the company. Thus, the contract should be simple and free of invalid information. The contract must also be signed with the full consent of the client.
By the article above, you must now know what life insurance and its principles are. To aid your future, the Canara HSBC Oriental Bank of Commerce Life Insurance has the best in market policies available. It ensures long-term stability and instant support in unforeseen times. The policy includes many benefits like the Immediate Payout on death service, which provides funds immediately after death registration to the family. There are a number of plans you can choose from, including the child plans, savings plan etc.
You must keep all the above-mentioned principles of life insurance in mind while investing in insurance to procure maximum benefit from the Company. It is also essential that the insurance company and you work in coordination to establish a hassle-free relationship and secure the only precious thing to you that is your life.
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