Welcome to the Introduction to Insurance Principles
There are some basic principles that govern the conduct of insurance. We are going to look at each of them briefly..
The principles of insurance are:
1. Indemnity
2. Average
3. Subrogation
4. Proximate Cause
5. Contribution
6. Utmost good faith 7. Insurable interest
Let’s start with indemnity
Indemnity requires that an insurer must place the insured in the same financial position as he was in before the loss. An insured cannot make a profit from the loss.
In the event of a total loss of a car in a car accident, the insured will be paid out the value of the vehicle less any applicable excess.
The second principle we will look at is average.
The application of average is the method which insurers use to deal with underinsurance.
In the event of underinsurance, the insured is paid proportionately and not paid in full.
The calculation used to settle a claim in the event of underinsurance is the sum insured divided by the actual value of the property, times the value of the loss suffered.
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