Insurance Services

Meaning of Insurance

Insurance is a contract under which one party (the insurer, usually an insurance company) promises, in exchange for a payment called a premium, to compensate another party (the insured) for a specified loss, damage, or liability if a particular uncertain event occurs. It works on the principle of risk-sharing: a large number of people facing a similar risk each contribute a small premium, and the pooled fund is used to compensate the few who actually suffer a loss. Insurance does not prevent a loss from happening — it protects the insured from the financial consequence of that loss.

General Principles of Insurance

1. Utmost Good Faith — Both the insurer and the insured must disclose all material facts honestly and completely at the time of taking the policy; concealing a relevant fact (for example, an existing illness in a life-insurance proposal) can make the contract void.

2. Insurable Interest — The insured must have a genuine financial stake in the subject matter of insurance, i.e. they would suffer an actual financial loss if the insured event occurred; this stops insurance being turned into a bet on someone else's property or life.

3. Indemnity — The insurer compensates the insured only for the actual financial loss suffered, and no more — insurance is meant to restore the insured to the position they were in before the loss, not to let them profit from it. (This principle strictly applies to property/general insurance; life insurance is an exception since a human life cannot be given a precise money value.)

4. Contribution — If the same risk is insured with more than one insurer, each insurer bears the loss only in proportion to the amount it has insured, so the insured cannot recover more than the actual loss by claiming the full amount from every insurer separately.

5. Subrogation — Once the insurer has paid a claim in full, it steps into the insured's shoes and gains the right to any recovery the insured could have claimed from a third party responsible for the loss (for example, recovering repair costs from a driver who caused an accident).

6. Proximate Cause — The insurer is liable only when the loss is directly and closely (proximately) caused by an insured risk, not by some remote or unrelated event that merely happened around the same time.

7. Mitigation of Loss — On the happening of an insured event, the insured must take all reasonable steps to minimise the loss, just as a prudent uninsured person would, rather than being careless because the loss is covered.

Types of Insurance

Life Insurance — Covers the life of a person; the insurer pays the agreed sum either on the person's death or on maturity of the policy (whichever the policy specifies), helping the insured's family or the insured themselves meet financial needs.

General Insurance — Covers property, goods, liability, and other non-life risks, and mainly follows the principle of indemnity. Common types include:

• Fire insurance — covers loss or damage to property caused by fire (and often allied perils). …