Explain the principles of Life Insurance ?

Solution

Principles of Life Insurance are as follows :

1. Principle of Utmost Good Faith : The contract of life insurance is a contract of utmost good faith. Insured should be honest and truthful information to the insurance company. He knows more about the subject matter of the contract than the other party. Consequently, he is under a duty to disclose accurately all material facts known to him to the insurer.

2. Principle of Insurance Interest: In life insurance, the isnured must have insurable interest in the life assured. Without insurable interest the contract of insurance is void. In case of life insurance, insurable interest must be present at the time when the insurance is affected. It is not necessary that assured should have insurable interest at the time of maturity also.

3. Principle of Indemnity : Life insurance contract is not a contract of indemnity. The life cannot be compensated and only a specified sum of money is paid. That is why the amount payable in life insurance on the happening of the event is fixed in advance. Once the sum of money payable is fixed, it is coastal invariable. A contract of insurance, therefore, is not a contract of indemnity.