Q.Justify the following statement.
Principle of subrogation is applicable to all contracts of indemnity.

Life insurance is a contract of assurance, not indemnity. Because a human life has no measurable money value, the principle of indemnity does not apply to it, though insurable interest and utmost good faith still do.

Insurance contracts rest on a set of basic principles. Three of them appear in this question:

• Insurable interest — the insured must stand to suffer financially if the event insured against occurs. In life insurance a person has insurable interest in their own life and in the life of a spouse or dependant, so this principle does apply.
• Utmost good faith (uberrimae fidei) — both parties must disclose all material facts honestly (age, health, habits, family history). This principle also applies to life insurance.
• Indemnity — the insurer restores the insured to the same financial position as before the loss, paying only the actual loss and no more. This prevents the insured from making a profit out of a loss. …

The principle of indemnity does not apply to life insurance.

The principle of indemnity states that insurance compensates the insured only for the actual monetary loss suffered — the insured should neither profit nor lose from the event. This principle works for property insurance because the loss can be valued in money.

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Insurance helps to minimize/reduce business risks, not to increase them.

Insurance is a contract in which the insurer agrees to compensate the insured against a possible future loss, in return for a premium.

How insurance minimizes risk:

• It transfers the financial burden of a loss from the businessman to the insurance company.
• Losses due to fire, theft, accident, natural calamities, etc. are compensated, giving financial security. …

The correct sequence is Taking the policy, Accident, Claim.

The insurance process follows this natural order:

1. Taking the policy – The insured first enters into an insurance contract and pays the premium.
2. Accident – During the policy period, an unexpected event/loss (accident) occurs.
3. Claim – The insured then applies to the insurance company for compensation for the loss suffered. …